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Saturday, June 27, 2009

Oklahoma Attorney General says BP/Arco manipulates gasoline prices

Dateline: Terry, Montana
June 27, 2009 6:00 AM MDT

Nationally the average price for regular unleaded gasoline is $2.658 down about 3 cents per gallon from a week ago. Montana's gasoline prices have leveled off at $2.72 with California staying high at $3.01 per gallon. Hawaii gets the prize for the highest cost for gasoline at $3.09 per gallon in the AAA fuelgauge.report. The gasoline spot market price meanwhile has dropped by 20 cents per gallon in the last two weeks but retail pump prices have not reacted in kind and are not expected to drop much more before the end of next week.

Pump prices have barely budged with the spot market gasoline and diesel prices going down another 2-3 cents per gallon at the end of this week. The August WTI crude oil price decreased $1.07 to just above $69.16 a barrel on Friday

Big industry news was published in the Oklahoma Daily Journal on Friday that State Attorney General Drew Edmondson had filed a lawsuit against BP/Arco (BPL). He is accusing them of gaming the price of gasoline and crude oil since 2002. This alleged scheme had previously been brought to the attention of the Federal Trade Commission but Edmondson claims to have found fresh evidence that BP was able to manipulate gas prices by hoarding short-term motor fuel and crude oil supplies.

The Federal Trade Commission (FTC) investigated those same allegations in 2006. At that time, BP/Arco was suspected of manipulating the petroleum market by controlling the physical West Texas Intermediate (WTI) crude oil inventory at the Cushing, Oklahoma terminal. They have since divested some of those assets but they are still dominant in trading WTI at the Cushing terminal.

The initial investigation into trading practices between oil companies was called for by Congress in the wake of the huge gasoline and fuel price spikes, which occurred in the aftermath of the Rita and Katrina hurricanes. Those storms ended up hitting refinery complex located on the U.S. Gulf Coast in August and September of 2005. Extensive damage was incurred to those refineries and interrupted the supply of crude oil, finished fuels and lubricating oils to the market.

The oil companies were absolved of any wrong doing by the FTC in the "Investigation of Gasoline Price Manipulation and Post-Katrina Gasoline Price Increases” published in the spring of 2006. That report concluded that normal supply and demand market forces were the reasons for the price variances in the petroleum markets.

AG Drew Edmondson has announced his intentions to be a candidate for Governor in Oklahoma in 2010. That announcement and the filing of the lawsuit against BP/Arco were coincidentally made on June 10, 2009. Any outcome of this lawsuit will definitely also have an effect on the upcoming election in crude oil rich Oklahoma.

Bob van der Valk is the Director of US Branded Licensing with 4Refuel Inc. in Lynnwood, Washington and can be contacted at (971) 678-2975 or by email at: tridemoil@aol.com

Bob’s web site address is: www.4vqp.com/ourconsultants/thegasguy.html

Tuesday, June 23, 2009

Dateline: Terry, Montana
June 23, 2009 2:30 PM MDT
By: Bob van der Valk

April showers may bring May flowers but this year it also brought forth a spring time renewal for oil refiner’s profits. This was in the form of increased demand for gasoline after dismal first quarter results in 2009. But now the June swoon has come too soon and the oil companies are looking forward to those summer breezes peeking just around the corner

I was waxing somewhat poetic while reading a flood of news reports this week about gasoline prices in the U.S. and Canada dropping for the first time in over seven weeks. The average price for gasoline in both countries has dropped a whopping seven tenth of a cent of a gallon or liter this week. Motorists have been practically been dancing in the streets celebrating their new found fortune according to on the spot media reports from many parts of the country. Some are even quoting some experts about gasoline prices having peaked and to be going down for the remainder of this year.

But wait just a minute! How come the price of crude oil dropped $5 to around $69 a barrel in the last two weeks but gas prices have only gone down by a fraction of a cent during that same time? Haven’t we been told by some of the pundits that gas prices always move in lock step with crude oil prices? That for every dollar a barrel change in the price of crude oil we are supposed to see gasoline move up or down 2.5 cents per gallon at the pump?

The answer my friend is blowing in the wind. This time around the major oil companies are not matching the independent unbranded gasoline rack prices down as fast as you were expecting. The difference between the major branded dealer tank wagon and independent unbranded gasoline prices is now over 20 cents per gallon in the U.S. and 5 cents per liter in Canada. This phenomenon is known in our industry as: “Gas prices shoot up like a rocket, and drift down like a feather”.

In this case the oil companies are stocking up to be prepared in case those summer breezes change into hurricanes. Gasoline demand has increased with April being the latest month on record showing an increase over the same month last year. So with Canada Day on July 1st and the U.S. July 4th weekend just around the corner do not expect to see pump prices coming down a lot this week.

Different average gas prices have been bandied about by various agencies of the government and private companies with the motoring public somewhat confused about which number to believe. For instance on June 22nd the Energy Information Agency (EIA) showed the average price for a gallon of regular gasoline in the U.S. to be at $2.691 while the AAA fuelgauge reported it at $2.69. Those two seem to be in sync but on the other hand the gasbuddy.com web site reported the average U.S. price at $2.663 per gallon.

The difference in the two reports is that the EIA and AAA uses information provided through credit card purchases. The gasbuddy.com web site has price spotters, who log in and report pump prices from their local gas stations for both cash and credit cards.

For instance Arco stations do not accept anything other than cash or debit cards at their pumps and are usually the lowest price in their neighborhood. That tends to skew the average price per gallon by about 3 cents per gallon. This is due to dealers, who do accept all types of credit cards, having to price their gasoline higher by having to pay a merchant fee for each transaction to their banks.

In the short term prices will continue to go up another 25 cents per gallon between now and middle of August. After Labor Day gasoline prices will ebb down slowly and by Thanksgiving go back down to about where they were last year at the same time. That means you can start looking forward to $2 per gallon gasoline at a gas station near you by Christmas this year.

Now you know what is going to be happening in the refining and marketing end of the oil industry, you should go fill up your tank by this weekend before gas prices are raised. In the Badlands of Eastern Montana we believe in the moral behind the fable of the “Milkmaid and Her Pail”, which goes: “Do not count your chickens before they are hatched!”


Bob van der Valk resides in Terry, Montana and is the Director of US Branded Licensing with 4Refuel Inc. in Lynnwood, Washington. He can be contacted at (971) 678-2975 or by email at: tridemoil@aol.com

Bob’s web site address is: www.4vqp.com/ourconsultants/thegasguy.html

Any views expressed in this newsletter are those of the writer, except where the writer specifically states them to be the views of the 4Refuel group of companies.

Thursday, June 18, 2009

The insider’s secret on how gasoline is priced

Dateline: Terry, Montana
June 18, 2009 11:00 AM MDT
By: Bob van der Valk

After emigrating to the U.S. from Holland, at the young age of 15, I learned to speak English by watching Saturday morning cartoons and listening to Elvis Presley songs on the radio.

English was a mysterious language to me and it took a while before I caught on to the finer nuances of speaking English. The kids at North Miami High School in Florida thought that my Bugs Bunny and Elvis Presley voice impressions were a riot and I l quickly was able some good friends.

The U.S. and Canadian motoring public learn much about the cause of the wild gas price gyrations from the same type of sources.

Crude oil prices are usually made out to be the culprit and blamed by the media for the gas price roller coaster rides. But is not the only factor in the current round of fuel price spikes. Today gas prices tend to influence and support crude oil prices. That opinion runs counter to the conventional view that crude oil drives gasoline prices.

It is the inverse of what occurred with fuel prices in 2007 and early 2008 in the petroleum industry. Since August last year, fuel prices have been driving crude oil prices up and down.

It is my prediction that crude oil may hit $85 in the near term and then ebb back down to $40 by the fall of this year. By Christmas 2009 the price of gasoline in the U.S. should be around $2 per gallon with Canada at 90 cents per liter.

In early August 2008, I made a forecast, published in the Pasadena (CA) Star News, that crude oil and gasoline prices would go down in the last part of 2008. In August, crude oil was still hovering around $140 a barrel and gasoline was over $4 a gallon in the U.S.

By December 2008 the average price of crude oil was $33 a barrel and gasoline was at $1.60 per gallon. That severe drop was aggravated by the economy’s plunge into its recession along with the financial crisis.

I made a prediction in the January 2009 that gas prices would hit $3 per gallon again by the summer as quoted in the following article:

http://www.insidesocal.com/news247/2009/01/gas-prices-could-reach-3-by-su.html

I have been in the petroleum industry for almost 50 years with all that time spent in the refining and marketing (R & M) end of the business. In my early career I worked in the retail and wholesale departments for Union Oil Company of California a.k.a. Unocal in Los Angeles. This should qualify me as the ultimate insider and expert on the way the petroleum industry prices gasoline.

The U.S. petroleum industry has returned to the basics of refining crude oil into gasoline. Major oil companies have the ability to explore and produce for crude oil and bring it up out of the ground for around $40 a barrel. Any amount over that price is pure profit to the oil companies.

The competitive battle between Exploration & Production (E &P) and R & M managers at the oil companies is back on. Each cannot stand to see the other make all the profits for their company.

In the days before the price of crude oil became paper driven, the R & M department used to have knockdown-drag out fights with the E & P department about the price of crude oil delivered to our refinery gate. In those days, they would price crude oil based on price posted at the well plus transportation costs. R & M would then add the cost to refine the crude into fuels and add the marketing cost to determine the wholesale or dealer tank wagon prices.

Today, they take the easy way out and relate their refinery gate crude oil price to the West Texas Intermediate (WTI) crude oil price plus or minus a discount for quality and location. For instance, the posted price for Elm Coulee crude oil in Richland, Montana is currently fetching the WTI daily posted price less $10 a barrel at the well head. R & M still has to add their costs to that price and relate that to the current wholesale and retail prices in order to stay competitive.

In March of 2001 Tom O’Malley, then CEO of Tosco, got tired of losing money for part of the year then trying to make it back during the spring time and summer driving seasons. He announced to his refining and marketing management team at a company meeting in their Phoenix headquarters, that they would tie their retail prices to the wholesale spot market price for gasoline and diesel.

The petroleum market is driven by trades in paper barrels for crude oil and finished products on the New York Mercantile Exchange (NYMEX). That in turn gives indications to the spot market and it has become a case of the tail wagging the dog.

The other major oil companies soon followed suit and since then the pipeline spot market has been driving fuel prices up and down. Today’s gasoline prices are based on a “What the market will bear” strategy by the major oil companies. In the 4th quarter of 2008 and 1st quarter of 2009 refineries lost big time money. Some of them, including the Big West refinery in Bakersfield, were forced to close down due to poor economics. This trend will continue as long as the big money investors stay on the sidelines and cause more havoc in the petroleum markets.
Goldman Sachs & Co., Morgan Stanley and other large investors are able to sidestep regulations that limit investments in commodities such as crude oil. They are investing on behalf of pension funds, endowments, hedge funds and other big institutional investors, in part as a hedge against rising inflation. Crude oil investment is used to offset the weaker dollar with the money going back and forth as the world economy continues its slow recovery
A stream of financial deregulation under the Clinton administration, culminated in the Commodity Futures Modernization Act of 2000. These over-the-counter markets are 10 times larger than the futures market with no position limits and almost no regulations to control their investments.
I have now revealed my secrets on the mystery of fuel pricing to you. I hope that the answer is as simple as watching those Saturday morning cartoons in order to learn to speak English.

Bob van der Valk is the Director of US Branded Licensing with 4Refuel Inc. in Lynnwood, Washington and can be contacted at (971) 678-2975 or by email at: tridemoil@aol.com

Bob’s web site address is: www.4vqp.com/ourconsultants/thegasguy.html

Any views expressed in this newsletter are those of the writer, except where the writer specifically states them to be the views of the 4Refuel group of companies.

Thursday, June 4, 2009

All We Need to Survive: Water, Food and …….Gasoline!

Dateline: Terry, Montana
June 3, 2009 - 11:30 MST
By: Bob van der Valk

While the market sorted itself out yesterday, I was busy trying to keep from running out of water at the Bob's Big Boy Ranch in Terry, Montana. At one point we not only had our artesian well down but our hard water well had shut down as well. Unexpectedly, we had to make a quick trip and run out to the Terry Super Valu grocery store to stock up on bottled water. We may well be having a similar problem happening right now in the refining and petroleum business.

With crude oil being pumped out of the ground like water, any interruption will cause consumers to look for options to maintain some sense of normalcy. In our case, we almost decided to move back in with our daughter Inger and her family while the repairs were being made. But, what do we do when we run out gasoline? We can't do anything especially when living out in the country where long distances have to be covered by car or truck every day.

The Department of Energy statistics were bearish for diesel and neutral for gasoline today. The wholesale spot market price is down 4 cents per gallon for diesel and no change for gasoline, so far. So far the July WTI crude oil price is down $2.21 to $66.34 a barrel. The Nymex is off for now but there is doubt it will stay down that much at the close of business today with buyers perched to jump in as soon as they sense the low has been reached.

This year it's all about oil refineries being able to keep up with the expected increase in demand of gasoline for the upcoming summer driving season. Petroleum traders will be concentrating on the supply issues with the biggest focus on refinery gasoline output.

This morning's Department of Energy report is the tale of the tape for an upcoming fight between the bulls and the bears in the petroleum market. There are plenty of points to go around supporting both sides of the arguments to reach conclusions that crude prices and therefore gasoline prices may either shoot like a rocket or go back down with a bullet.


President Obama was greeted by Saudi King Abdullah upon landing in the Middle East today. He also received the news that the Saudi Arabian Oil Company Aramco had raised their crude oil prices from $1.05 to $3.25 a barrel for shipments in July 2009. The heavy crude oil is the one at the lowest with the light crude oil selling at the highest price. All of their crude oil prices are ratcheted up or down from the posted Brent crude oil price.

Our water situation will be resolved within a day or two but the current market situation for gasoline prices will continue to play itself out throughout the summer months. Right now the Four Corners gas station in Terry still has plenty of gasoline in the tank but it us 10 cents per gallon more today then it was a week ago.

We better keep the horses saddled up and ready just in case we will need them for back up. There may come a time when I will have start reporting the prices of hay and alfalfa instead of gasoline.