Basketball season is over, but here’s my July lay-up: Gasoline prices in the Great Plains states will soon increase by 10-25cts gal, and smaller gains may take place across many other states. The increases should be enough to send the national average for unleaded regular above $3.00 gal in the next week.
This afternoon, we saw a new cluster of refining difficulties. The country, of course, lost a 108,000 b/d refinery in Coffeyville, Kansas for what could be months thanks to severe flooding last week. Late today, we heard of problems with a huge BP refinery in Whiting, Indiana; and Valero refineries in Ardmore, Oklahoma and Texas City, Texas. We also saw confirmation of some problems on the West Coast at a BP refinery in Carson, California.
Bulk (or what we call “spot”) markets weren’t particularly spirited this week, with many traders on vacation. But spot markets for gasoline and diesel (spot markets ultimately determine what distributors will pay at wholesale; what retailers will have to charge at retail; and what you will pay at the pump) still saw increases that ranged from perhaps 5-10cts gal on the coasts, to as much as 30cts gal in the Midwest.
The spot price for gasoline was about $2.63 gal for product (ex all taxes and delivery) among the refineries in Oklahoma and Kansas that supply most of the Great Plains.
A rule of thumb for determining retail prices is to take the spot price and add about 60cts gal, and you’ll come up with an approximate retail target. My Jethro Bodine ciphering concludes that we’ll see retail prices of close to $3.20 gal in states like Oklahoma, Kansas, Nebraska, the Dakotas, Iowa, and perhaps even Minnesota. These retail markets are generally in the $2.90-$3.08 gal range now, but a fairly stiff increase is imminent.
It’s Friday and there aren’t a lot of corporate media relations’ people around to confirm refinery equipment problems (many refiners regard their operations with a protective zeal that would make *** Cheney seem warm and fuzzy) but if we lose some more refining output, we’ll see gasoline steal the headline thunder from floods. I’m betting that next week will be absolutely hyperactive - - -I wouldn’t be surprised to see oil prices displace Scooter Libby and the 2008 presidential candidates as the top story in the second week of July.
Meanwhile in the crude oil market …
As regular readers know, there is magic in certain numbers, and hitting a new even number has special resonance with the business and consumer public. We hit $100 bbl prices for gasoline again (ex tax) in the Midwest and on the West Coast last week, but the global focus was on those sexy crude oil numbers.
We’ve crossed into rare territory for many grades, with North Sea crude closing above $75.50 bbl this afternoon and West Texas Intermediate (WTI) crude ending the day at $72.81 bbl.
You will find many analysts who will pump out predictions of the inevitable $80 bbl price or even $90-$100 bbl crude before this rally runs its course. I won’t do that. I will remind everyone that we are now very close to the 2006 week which saw WTI prices hit an all time top of $78.40 bbl. That value fell below $60 bbl before the Autumnal equinox in an example of how commodities can falter in a much less elegant fashion than they rose. I’m going to stick with what I said many months ago - - I believed that $78 bbl was an excessive price in the Summer of 2006, and I believe it represents excess in the Summer of 2007.
Take note. We currently have more crude in U.S. storage than we’ve had on hand since the Summer of 1998. That was a particularly volatile year. Some highlights:
- - Monkeys attacked people in Ito, Japan, significantly hurting the ambitions of a fair portion of men who secretly favor monkeys over dogs as man’s best friend.
- - Seinfeld aired its last episode, but not before stamping metaphors and references for everything that has subsequently happened in business, pop culture, and interpersonal relationships.
- - George Michael was arrested in a restroom at Will Rogers Memorial Park. No comment necessary.
- - Mark McGuire was more than halfway to his quest to break the most treasured record in all of sports.
- - Exxon & Mobil merged and became ExxonMobil. I italicized the word merger, similar to the way historians italicize it when they refer to Germany merging with the Sudetanland. Similar dynamic.
- - Google was founded.
- - Jesse Ventura was in his first year as the governor of Minnesota.
If one considers that last bullet, one might wonder if Minnesota and some adjacent states are getting their just rewards in the form of higher fuel prices. They will be wrestling with increased costs for the rest of this month thanks to the events of the last ten days.