Friday, March 27, 2009

Get In The Mood For Crude!


West Texas Intermediate crude oil price settled at $54.37 a barrel yesterday, up from below $32 just after New Year’s Day this year. Wholesale and retail diesel prices have increased 2.5 cents per gallon almost in lockstep for each one dollar increase in the price for a barrel of oil. There are 42 gallons in a barrel of crude oil.

Fuel prices will be rising further but we will not get back up to the highs of last year. Each $10 a barrel rise in crude oil prices will translate into a 25 cents per gallon increase for fuel prices.

It went almost unnoticed that the average gasoline price in the US went over the $2 per gallon mark this week. That price is still $1.25 per gallon below the average price on the same date a year ago.

Retail gasoline prices usually have a delayed immediate reaction to their wholesale price increases. Those costs are being absorbed by refiners and service station operators in their attempt to retain volumes. Most of the independent unbranded stations such as Costco are posting pump prices inverse to their costs. In plain and simple terms they are “upside down” selling gasoline for less than what they are paying their refiners or wholesale distributors.

West Coast gasoline prices are now over $2.20 per gallon, up 4 cents per gallon in one week and 11 cents from just a month ago. The latest wholesale price increases for gasoline indicates that there is still strength for that price to increase up to $2.30 per gallon by the end of next week. The rest of the US will be feeling lucky to only be paying $2.10 per gallon by that time.

The OPIS wholesale rack prices for regular unleaded gasoline in Los Angeles shows the following: 3/27/09 3/11/09 DifferenceBranded Rack Average 1.5584 1.4808 + .0776Unbranded Rack Average 1.6783 1.3967 + .2816

With the average between the branded at unbranded gasoline prices at the “Los Angeles rack” being around $1.62 per gallon, the total price with taxes and distribution costs will be $2.30 per gallon.

The May WTI crude oil price is expected to run up in the high 50's within the next week driven by demand for gasoline and investors looking for a hedge from inflation. The most liquid commodity is oil futures and an increase in open interest and contango for crude oil is an indication of that trend. The price of crude oil will firm up when The US Commodity Futures Trading Commission (CFTC) data, being released later today, confirms whether that trend is continuing.

This week California service stations owners were notified by certified mail about the fines to be imposed on any stations not in compliance with the new Enhanced Vapor Recovery (EVR) Phase II regulation going effect on April 1, 2009.

The California Air Resources Board approved implementation of the EVR program in March 2000, providing a ten-year phase-in of multiple standards to reduce gasoline vapor emissions from the storage and dispensing of gasoline.

About 11,000 service stations in California are affected and about one third of those are not going be in compliance by the looming deadline. The result will be that about 10 per cent of the stations will shut down instead of paying the hefty fines being imposed. California motorists will be surprised to find some of their favorite gas stations closed down and think that it might be an April fool’s joke.

Gasoline Prices To Be Or Not To Be Higher?


The quote by William Shakespeare is one of the Bard's best and something will come of something in the petroleum industry with all that is happening in the petroleum market today.
Crude oil prices were lower earlier this morning but are expected to go back up after the release of a bullish "durable goods" report. A 14-month high for February 2009 was reported by the US Department of Commerce that durable goods orders increased 3.4% to $165.6 billion in the latest month.

The WTI crude oil price for May was down 70 cents to $53.28 a barrel after the DOE released their weekly inventory statistics this morning. Indications are that energy prices remain strong, even stronger than equity markets, managing to hold on their new price levels. The WTI crude oil for May settled at $53.98 a barrel on Tuesday, which is the highest settlement price since November 28, 2008.

Retail gasoline prices were higher this week as well with the West Coast once again leading the rest of the country going at the pump. Today’s AAA fuel gauge report showed that gas prices went up over another penny per gallon. The average price for regular unleaded gasoline will go over the $2.20 per gallon by this week Friday.

The OPIS wholesale rack prices for regular unleaded gasoline in Los Angeles showed:

On March 25, 2009 On March 11, 2009 Difference
Branded Rack Average 1.5731 1.4808 + .0923
Unbranded Rack Average 1.7113 1.3967 +.3146

Translated that means the price of gasoline with taxes and distribution costs added to the rack price should be somewhere between $2.25 at the branded major oil company stations and $2.40 per gallon at the unbranded independent stations between now and the end of this week in Los Angeles. Zone pricing by the major oil companies will ease that a little bit by stations only increasing their price 2 - 3 cents at the pump. Meanwhile the Indies will be suffering losses on every gallon of gasoline they sell at their stations below $2.40 per gallon.

This morning's Department of Energy inventory statistics showed crude oil stocks increasing another 3.3 million barrels for a total of 356.6 million barrels. An additional 1.8 million barrels were pumped into the Strategic Petroleum Reserve in Louisiana.Gasoline stocks fell 1.1 million barrels to 214.6 million barrels along with demand increasing 145 thousand to over 9 million barrels per day. That will keep gasoline prices increasing in its usual upward march in the springtime for the last five years. Diesel prices are strong based on harsher than normal weather conditions in the East and Midwest part of the country.

The lyrics from a Jackie Wilson song from the 1950’s are an appropriate end to the gas price advisory today. With apologies to Mr. Wilson it has been slightly altered to read: "Your Gas Prices Are Lifting Higher and Higher". Sing it, Jackie!

Rescue Me and Take Me In Your Arms!


Aretha Franklin's signature song is being revived by the banking industry and US Government to convince the skeptical American taxpayers to throw more of their good money after bad investments made by the Wall Street banks. Other bad news will follow as crude oil will follow suit and increase in response to this program, which is the government's latest attempt to keep the financial industry afloat.

Crude oil for May delivery raised towards the $53 a barrel mark this morning, the highest in almost four months. This was mostly supported by a weak dollar after the Treasury Secretary Timothy Geithner announced plans to remove toxic mortgage assets from bank balance sheets. The administration's new rescue program will consist of the US Government going into partnership with private institutions and spend more taxpayer’s cash for mortgage trash.
This new enterprise tentatively called the Congressional Legacy Asset Program or CLAPCO, to go along with the other government created debacle AIG for Ain't It Grand, may have Congress back pedaling on giving this new program their automatic stamp of approval.

The US government rolled out the new plan on Monday with the hopes that it will purge banks of up to $1 trillion in toxic assets in an attempt to pull the economy out of its current recession.
May WTI crude oil is at $52 a barrel, having earlier climbed to $52.90, the highest price since December 1, 2008 The crude oil price increased from below $33 a barrel in December, 2008 and has been boosted since that time with production cuts by the Organization of the Petroleum Exporting Countries.

On the West Coast refiners are buyers for Los Angeles pipeline gasoline. The BP/Arco refinery in Carson reported a flaring problem last Friday causing the spot market gasoline to spike another 7.5 cents per gallon to $1.61 per gallon.

That relates to the price for unbranded unleaded regular gasoline at the pump in California to be at $2.30 per gallon. The AAA fuelgauge report showed gasoline prices leveling off at $2.13 in Los Angeles and up slightly to $2.18 per gallon in Seattle over the weekend. The prospect for gasoline prices to increase over the next week look better than the chances for the new financial rescue program to be approved by Congress.

Last Friday the US congress passed a bill that will spell the end to the big pay days for any employees of bailed out institutions, imposing a 90% special tax on any pay outs. This move has railed the Wall Street investment community, with some bankers declaring it similar to the McCarthyism from the 1950's. The term being used is that they will now have to learn to live with Obamanism.

Saturday, March 21, 2009

It's Heartbreak Hotel Time for Gasoline Prices

The van der Valk Gas Price Advisory for March 19, 2009

Dateline: Terry, Montana

If Elvis was alive today he would have been on his knees looking forlorn at his adoring audience while singing one of his songs making you feel even bluer after all that is happening in the world today.

Unemployment is skyrocketing, our economy is the dumps and un seemingly large handouts are being doled out by our government to those same entities and people, who were the cause of all our problems. So maybe it's time to bring the curtain down as have Elvis sings: "Are your lonesome tonight?"

As predicted and with assistance from Bette Davis, it's has been a rocky night! After we all went to bed last night crude oil future went up $3 past the $52 a barrel mark. Increases for gasoline and diesel prices followed right on their heels with an almost 10 cents per gallon bump up this morning.

The oil markets are taking their lead from signs that world oil supplies are tighter because of OPEC and non-OPEC crude production cuts along with some indication that U.S. gasoline demand may be stabilizing. A recent Energy Information Agency report showed demand for gasoline up 2.2 per cent for the first two months of 2009 over the same time last year.

A weaker dollar and aggressive action from the Federal Reserve are also behind this morning's rally. Equity markets are taking heart that the recent rallies may actually be holding this time. The big news was the Fed announcements yesterday of a $300 billion qualitative easing package to buy up 2-10 year treasury bonds, in a bid to ease credit liquidity and kick start the economy. The markets were not expecting this move but gave its support by showing their money.

There is also word going around in the hallowed halls of power in Washington and New York that Timothy Geithner, the US Treasury Secretary, will be made the scapegoat in the Obama administration and take the blame for the current AIG mess. The joke going around is that AIG is the acronym for Arrogance, Incompetence and Greed.

His resignation is widely anticipated as he will not want to embarrass President Barack Obama even more. Outraged Republicans were very vocal in their opposition to Timothy Geithner's appointment right from the beginning. That came after his tax problems were revealed only after he had already been nominated for President Obama's economic team's cabinet position.

Between Bernie Madoff, Allen Stanford and a cast of thousands you will soon be able to see a High School Musical type revival of "Jailhouse Rock" presented at the Federal Correctional Facility nearest you.

Monday, March 16, 2009

Why Do Gas Prices Go Up This Time Each Year?


US Energy Secretary Stephen Chu's mission accomplished what the Obama administration asked him to do. He was sent to Vienna last week to visit with the Saudis, who are shouldering the brunt of OPEC production cuts, while other non-compliant nations continue to produce barrels beyond their quotas.

Secretary Chu had to impress on all of the oil ministers the urgency of not lowering their oil shipments even more than their quotas. This had to be done in order to assist the US and in turn the world economies in recovering from their current recession. Saudi Arabia is one of the OPEC members actually adhering to its assigned quota.

The stock market continued to rally this morning, which in turn sparked gains for oil futures pulling crude and products prices up out of earlier negative territory. Crude oil passed $46.80 a barrel as the Dow and S&P 500 charged higher for the fifth straight session. Earlier this morning April WTI crude oil prices had dropped $1.50 to less than $45 a barrel on the New York Mercantile Exchange, as the OPEC announcement leaving production quotas unchanged sunk in.

The ministers noted that "the worst global economic recession in decades" had contributed to lower demand for crude oil and said it would continue to monitor cuts made since last October. Their next meeting is scheduled for May with the summer driving season in full swing by then.

One positive aspect of continued lower crude oil prices is that any oil production with higher costs will not find a market, which will assist industries to stay economical. In other words with the cost of energy remaining stable for the remainder of the year our economy should be able to recover from its current recession.

The average price of gasoline in the US was at $1.91 per AAA fuelgaugereport up slightly from last week. But get ready for the big spike in gasoline prices as we warm up from the summer. Last week the temperature in Terry, Montana was a chilly minus 18 degrees F with a wind chill factor of minus 31 degrees F. Today that temperature will soar all the way up to 59 degrees so hope springs eternal that we are coming out of one of the coldest winters in recent history. But with summer around the corner, gasoline prices will go up along with the temperatures around the country.

West Coast gasoline prices have already firmed up some more after units at the Tesoro refinery in Wilmington, CA were taken down for maintenance last Friday Gasoline prices usually spike up with refineries coming out their spring turn-a-rounds. Here is a brief overview of "Gasoline Refining 101" and why gasoline prices go up each time this year.

The transition from winter gasoline results in reducing gasoline supply by 10 per cent over the winter grade. The West Coast refineries start out this process by the middle of February each year with the remainder of the country switching over to the stringent Environmental Protection Agency (EPA) requirements by the middle of April.

In order to meet the stricter summer grade the refineries have to lower the Reid Vapor Pressure (RVP), which is a standard measurement of a liquid's vapor pressure in pounds per square inch at 100 degrees F and is an indication of the propensity of the liquid to evaporate.

Gasoline must have an RVP below 14.7 PSI (pounds per square inch), which is normal atmospheric pressure; if a fuel's RVP were greater than 14.7 PSI, excess pressure would build up in the gas tank, and the fuel could boil and evaporate and cause "knocking" in the engine of your car. Depending on the part of the country, the EPA's standards mandate an RVP below 9.0 PSI or 7.8 PSI for summer-grade fuel. Some local regulations call for stricter standards. Because these varying RVP standards, up to 20 different types of boutiques fuel blends are sold throughout the U.S. during the summer [Source: Slate].

Because RVP standards are higher during the winter, winter-grade fuel uses more butane, with its high RVP of 52 PSI, as an additive. Butane is inexpensive and plentiful, contributing to lower prices. Summer-grade fuel might still use butane, but in lower quantities -- around 2 percent of a blend [Source: The Oil Drum].

Blending alcohol into ethanol gasoline causes an additional problem for refiners in that it causes the RVP to increase once again. For areas of the country with ethanol gasoline the RVP requirement has to be lowered to 5.7 PSI, which means a refinery has to run an additional process in order to meet that standard. That last process is the one causing the supply of gasoline to be reduced by 10 per cent.

Wednesday, March 11, 2009

U.S. Plans for Boosting Alternative Energy Supplies and Conservation

Pimp My Ride, Flex My Fuel

Quoting from President Barack Obama’s campaign speech,
“We can’t drive our SUVs and eat as much as we want and keep our homes on 72 degrees at all times… and then just expect that other countries are going to say OK. That’s not leadership. That’s not going to happen.”

The year of 2009 was rushed in with President Obama announcing that U.S. energy independence would be his administration’s second priority right behind getting the U.S. economy back on track.

In order to do that, the President will have to keep his campaign pledge to push for the country to use 60 billion gallons of “advanced” bio fuels and substantially reduce carbon emissions by the year 2030. According to an article in Bio Diesel Magazine, the current usage of on-highway diesel fuel in the U.S. is 33 billion gallons per year. If all of the vegetable oil and animal fat were used to produce biodiesel, we could only replace about 14 percent of the current demand for on-highway diesel.

Compare that to the fact that we have consumed just 197 billion barrels of U.S. oil since the first domestic oil well was drilled in Pennsylvania in 1859. President Obama also promised to require all new vehicles sold in the country to be “flex fuel” vehicles, which will be able to use fuel containing mostly bio fuel by the end of his first term.

Jack Lee, 4Refuel’s President and CEO, says that his company’s fuel management system goes a long way in answering President Obama’s mandate on the use of alternative fuels as well as to reduce carbon emissions.

Bill Bishop, 4 Refuel's Vice President of Marketing, says that greenhouse gas emissions are averted through the company’s on-site fuel management approach. Innovative use of biodiesel will assist with greenhouse gas reductions. “If you start using say a B20 blend, you'll get about a 15 percent reduction in greenhouse gas emissions,” Bishop says.

There are unquantifiable benefits to appealing to customers’ increasing awareness of becoming “ecologically friendly”. 4Refuel feels that their business model can and should be replicated in the U.S. They disclose that their model will re-energize end users of fuel with overall cost savings while at the same time aiding in the reduction of green house gases with the use of bio fuels. 4Refuel believes it will also be a win-win situation for both petroleum distributors and the environment.

In January 2009, the Senate Finance Committee approved $31 billion in tax credits and financial incentives to boost alternative energy supplies and promote conservation. Their plan included most of the $20 billion in energy tax breaks approved by the House Ways and Means Committee, plus more incentives to help alternative energy companies. Most of those energy related items are contained in the $787 billion Stimulus Package signed into law by President Barack Obama on February 17, 2009.

Establishing the new “Green Plan” will come at a great cost to the average consumer’s pocket book. President Obama, with Congressional approval, will have to increase taxes on gasoline and diesel fuel in order to create the necessary cash to pay for all the projects he is proposing in order to become energy independent.

One of the ways to raise financing will be to increase the present Federal Road Excise Tax on gasoline and diesel. The National Surface Transportation Infrastructure Financing Commission has already recommended an increase of 10 cents per-gallon on gasoline and 14 cents per gallon on diesel, as well as indexing the federal excise tax to inflation.

During their meeting on February 26, 2009, the panel also backed the adoption of a controversial system to begin charging motorists based on how many miles they drive by the year 2020. However, this plan may not be seen through to fruition because President Obama has already stated his opposition.

To increase the Federal Road Excise Taxes will a very simple task to accomplish as it will only take simple majority approval by Congress, which is now being controlled by the Democrats. The justification for these additional taxes could be based on the current administration’s attempt to discourage the use of fossil based fuels as the primary energy source for our automotive and industrial needs.

For the moment, fossil fuels will remain the answer as we search for alternate energy sources to replace a larger percentage of the products refined from crude oil. Solar power, nuclear, wind and even natural gas will only be able to replace a small percentage of our total energy requirements in the next decade.

The "National Clean Energy Project" forum, chaired by Senator Harry Reid, was held in Washington on February, 23, 2009. It was attended by such governmental luminaries as former President Clinton, Former Vice President Al Gore, Speaker of the House Nancy Pelosi and Energy Secretary Steven Chu.

Their report outlined a plan to develop a secure, reliable, interoperable, national, and clean electricity grid to power America’s coming clean energy economy. Particular policy recommendations focused on the principle bottle necks for building grid projects.

One of the participants was former oilman T. Boone Pickens, who is now promoting wind power to generate electricity. He was interviewed by Neil Cavuto for Fox News Network. Mr. Pickens announced that the panel was going to formulate a new energy policy for the first time in forty years.

Notably absent from the forum were representatives from either the major oil companies or their trade organization, the American Petroleum Institute. Their intentional exclusion tells the tale of what is yet to come in the world crude oil markets.

You will soon see more flex fuel automobiles and large trucks running on natural gas driving on the highways and byways in the U.S. In other words, Americans better get ready to pimp their cars or trucks for the new century.

Wednesday, March 4, 2009

Crude Oil Trading Is Playing the Game: "Rescue Boat"

The WTI crude oil price gained $1.50 a barrel yesterday with news about more rebel attacks on Shell facilities in Nigeria. There was also more speculation swirling around that OPEC will cut additional production at their March 15th meeting in Vienna, Austria. The up note in energy markets was contrary to the continued weakness in the equity markets, which were all dangerously close to forming fresh lows again yesterday.

Today the price for WTI crude oil shot up another $2 to over $44 a barrel after bearish Department of Energy inventory numbers were released. On the West Coast spot market gasoline and diesel prices jumped up another nickel per gallon today with increase in demand for gasoline and cold weather in the East driving both of those prices up.

The retail price of gasoline is leveling off in the U.S. but will be increasing in the next few weeks as refineries are switching to shipping the lower Reid Vapor Pressure summer gasoline to their terminals.

There is still a big disconnect between the price of crude oil as the refiners are now ruling the roost on what they will pay for their crude oil instead of the other way around. The equilibrium point will be reached when demand for gasoline starts equaling supply once again.

Various recent EIA and DOE reports are pointing to that already starting to happen. Speculators are no longer a factor in the oil markets and oil refiners are now operating strictly on a "What the market can pay" for their finished products rather than the other way around. That will allow them to get back to making a profit once again.

And just like the game "Rescue Boat", there are no winners in the oil trading business, only survivors!

Bob van der Valk is the Director of U.S. Branded License Program and Fuel-pricing Analyst with 4Refuel Inc. in Lynnwood, Washington and can be contacted at (971) 678-2975 or email

My viewpoints can be viewed at:

Tuesday, March 3, 2009

Let The Crude Oil Spinning Wheel Spin


Yesterday was a Blue Monday or should we say Black Monday for the stock and petroleum markets but Tuesday we were humming a different tune.

What goes up must come down, Spinning wheel got to go 'round, Talkin' 'bout your troubles, it's a cryin sin, Ride a painted pony, let your spinning wheel spin . . . . .

Those forecasters, who had prophesied that the equity markets were due for an adjustment may be feeling a little smug today, but for most others the outlook is bleak.

Equity markets closed out one of the worst days since the recent recession/depression began and in recent years, with S+P 500 trading at an 11 year low. Unsurprisingly, energy markets tanked in sympathy with the WTI April crude contracts losing over $4 a barrel to stay just over $40 a barrel. On top of all this bearish news, Iran was quoted as being doubtful around further OPEC cuts at the March meeting.

Oil traders are as usual keeping an eye on equities' index with a strong bounce in the S&P or Dow could increase the pace of buying. WTI crude oil was back up to $41.23 a barrel on the close today with gasoline down 2 cents and diesel up two cents per gallon. The West Coast spot market is very weak today with most refineries finally back up and running at full efficiency.

This could be a case for the "wiggles" as we anxiously await the Wednesday Department of Energy report. If that shows larger than anticipated draws or builds in oil inventories, the numbers could change instantly. Last week's report strengthened the oil markets when it showed an increase in gasoline demand from the previous week.

Monday, March 2, 2009

Blue Monday for Crude Oil and Gasoline Prices

April WTI crude oil is down over $4.50 to just barely over $40 a barrel so far this morning. That should be good news for oil refiners as long as the prices of gasoline and diesel do not start coming down again. Even though wholesale spot market pipeline prices for gasoline and diesel on the West Coast dropped 8 cents per gallon this morning, retail gasoline prices in the U.S. increased over the weekend. Increases in pump prices will unfortunately be a continuing trend regardless on where crude oil prices are heading at least for the next two months.

U.S. oil refiners have been able to keep their foot firmly on the hose to keep from flooding the market with surplus gasoline. The spring refinery turn-a-rounds, switching from winter to summer gasoline, are now in full swing. This morning energy consultant Peter Beutel predicted another 30 cents per gallon increase for gasoline prices to come in the U.S. by the middle of May this year.

The U.S. economy once again felt more downward pressure on Friday, reporting 6.2% reduction in the fourth quarter, this included a downward revision of -3.8% and helped all the vulnerable equity and energy markets to start Monday on a negative note. On top of that AIG received another $30 billion bailout today from the U.S. treasury to keep them afloat.

The Dow Jones Average dipped under the $7,000 mark on all the negative economic news with no strengthening in sight for equity markets. That will drag down crude oil prices even more, even though an Energy Information Agency report showed that gasoline demand was back up slightly in January.

To end this on a positive note, remember part of the lyrics of the Fats Domino Blue Monday song includes: "Saturday mornin', oh Saturday mornin', All my tiredness will be gone away!"