Monday, August 31, 2009

The lull before the storm for gasoline prices

The van der Valk Gas Price Advisory for August 28, 2009

Dateline: Issaquah, Washington
By: Bob van der Valk
August 28, 2009 9:00 AM PDT

Right now there is a tropical depression named Terry (after my hometown in Montana) but it is slowly becoming a storm and will then turn into a full fledged hurricane. Of course, I am referring to what is happening with gasoline pump prices. The average price of gasoline over the last seven days has not changed precipitously but that is quickly changing on the oil market weather map. The AAA fuelgauge report shows the national average price of self-serve regular gas is $2.613 per gallon on Friday, down just over a penny from a week ago. The national average price of diesel fuel is $2.697 a gallon, up just over a penny.

For much of 2009, crude oil prices have gone steadily upward from the low 30's to the middle 70's. Meanwhile pump prices have increased nationwide from $1.50 to $2.60 per gallon. At 42 gallons to a barrel of crude each $10 represents about 25 cents per gallon increase or decrease for gasoline. But the market has reacted to the current recession just the opposite of traditional supply and demand dynamics. Instead of gasoline prices staying steady, they went up while the US and Canadian economies were going through their doldrums.

About 50% of the trades on the Nymex and ICE exchanges represent entities who will not take the delivery of one wet barrel of crude oil or fuel when their contracts expire. That is down from 55% at the same time last year before the crude oil price bubble burst. However, it is still higher than the 20% of traders holding paper barrels in 2000. That year is significant because that is when the CTFC took volume requirement off traders dealing on international exchanges. Speculators did what speculators do best and figured out a way to game the system in order to make money.

The big boys are now investing huge amounts of money on the US dollar as a hedge against inflation as well as flow money into the commodities markets, which has served as the primary driver of oil prices.

Gasoline prices are highest in Hawaii, at $3.297 a gallon, and cheapest in South Carolina, at $2.38 a gallon. California meanwhile has remained stable during the week, averaging $3.046 a gallon. The highest price for gasoline is San Francisco, where the average cost is $3.133 a gallon. The cheapest market is Yuba City, with an average price of $2.948 a gallon.

The Labor Day weekend is just a week away and the spot market prices for gasoline have already firmed up. That will translate into higher prices at the gas pump at least until the middle of September. By then the hurricane season for gasoline prices will come to an end when oil companies start switching to refining winter grade gasoline. The supply of gasoline and diesel will increase by 10% and pump prices will ease back down to $2 per gallon by Thanksgiving and crude oil to the 40's.

Tuesday, August 11, 2009

Why have crude oil and gasoline doubled in price this year?

Dateline: Terry, Montana
August 10, 2009 12.30 PM MDT

Gas prices are up 14 cents per gallon in the last 10 days across the country but crude oil has remained steady around $70 a barrel since the beginning of July. The American Petroleum Institute’s spokesman John Felmy would like you to reason that when the price of crude oil fluctuates up or down, it will have the same affect on the pump price for gasoline. However, that has not been the case so far in 2009.

The benchmark price for WTI crude oil decreased $1.00 on Friday, August 7th, to $70.93 a barrel after reaching an intra day high of $72.84 a barrel. There was no like response downward in the price for gasoline at U.S. and Canadian gas stations. In fact, gasoline prices have been going steadily upward and crude oil has followed instead of the other way around.

While U.S. gasoline demand usually reaches its ultimate level from June through August, refiners have on the other hand cut production in the three weeks ending July 31. Gasoline stockpiles on that date were 2.9 percent higher than a year earlier, while diesel stocks were 24 percent higher.
The US Energy Information Agency (EIA) reported that total daily fuel use averaged 18.9 million barrels in the four weeks ended July 31, which was 3.1 percent less than a year earlier. However, that is a deceptive number since it includes diesel and jet fuel demand, which has been as much as 20% below last year’s level.

Summer gasoline use is actually on the upswing and will reach its peak demand by Labor Day. This year the holiday weekend falls on September 7th well into the month in which refiners will be switching from producing summer to winter gasoline grade gasoline. That alone has in immediate affect on supply and brings about additional 10 percent of gasoline into the market. Refiners can produce an average of 22 gallons during the winter from a 42 gallon barrel of crude oil versus just 20 gallons out of that same barrel during the summer.

That is good for the consumers but bad for the oil refiners. They will be stuck in the same cycle that occurred last year with gasoline prices and crude oil prices going to a virtual free fall with profits turning into losses. The EIA chart below shows the history of US gasoline prices for the last two years. We started last year out at about $3 then increased to $4.15 per gallon by August. This year we began at $1.55 and went to $2.70 in that same time span.

The Organization of Petroleum Exporting Countries (OPEC) is scheduled to have its next meeting on September 9th with crude oil prices currently hovering around $70 a barrel. That price was quoted as “not bad” and necessary to maintain investment according to OPEC President Botelho de Vasconcelos in Angola over the weekend. OPEC is responsible for 40 percent of global supplies of crude oil and will be reviewing production targets for member countries at their next meeting.

Their big bug-a-boo will be how to handle the massive cheating by some of their members who are exceeding their assigned quotas. July estimates leave the OPEC-11 about one million barrels in excess of the total assigned quota of 25 million barrels of output per day in order to be in compliance with the about 4 million barrels per day crude output agreed upon last year.

You can join the crowd if you are totally confused by all the facts and figures you are reading and hearing on exactly what drives gasoline prices. Yesterday morning I joined a couple of elderly ladies for a cup of coffee at a snack bar table during the Ranch Rodeo being held at the Prairie County Fairgrounds in my hometown of Terry, Montana.

Inevitably, the subject of gasoline prices came up and they wanted to know how they ended up paying almost $1.25 per gallon more at the Four Corners gas station in town since earlier this year. After trying to explain it to them they just rolled their eyes and one of them said that it was just the greedy oil companies making money.

Saturday, August 1, 2009

iPhone service in Montana - Enter Dark Territory

The following email was sent to Randall Stephenson, CEO of AT & T, and Tim Cook, Acting CEO of Apple:

I moved to Montana from Washington in May 2009 and AT & T notified me on July 2, 2009 that they will be cancelling my service as I am in violation of my contract with them. I use my iPhone for business and travel to other parts of the country but apparently Montana is one of the states AT & T in which they cannot service iPhone data economically. It was explained to me by your representatives that the cost for access to other carriers exceeds what I pay on the AT & T flat rate data program.

AT & T cell service in Terry, Montana is about the same as Verizon Wireless. Dropped calls, not receiving calls and voice mail messages not received are the rigor with my iPhone. I had great service in Seattle, Washington where I purchased the phone in September 2008.

An email to each of you resulted in a call back from a representative in the Office of the President of AT & T and Apple. But all I received was sympathy and lots of apologies with no solution. The first customer service representative I contacted offered to switch my account to Verizon for me and suggested buying a Blackberry phone. I have just done so without her help and am waving AT & T goodbye.

The following article from Bloomberg tells the story on how exclusive arrangements like the one between AT & T and Apple is good for you but not good for the consumers is being investigated by the FCC.

"IPhone Probe to Focus on Markets Without Service, FCC Head Says
By Todd Shields
July 31 (Bloomberg) -- U.S. regulators probing wireless- phone contracts will focus on markets where Apple Inc.’s iPhone and Palm Inc.’s Pre aren’t available to consumers, the chairman of the Federal Communications Commission said.
“There are markets in the country where if you wanted an iPhone, if you wanted a Pre, you just couldn’t get it -- from anyone,” Julius Genachowski said in an interview yesterday. “So one question is, is that consistent with broad consumer interests?”
The agency also will consider if innovation is promoted or hindered by exclusive arrangements such as those that limit the iPhone to customers of AT&T Inc. and the Pre to Sprint Nextel Corp. subscribers, Genachowski said.
Genachowski, 46, declined to say what the next steps will be in the investigation, which the agency announced last month after four U.S. senators asked it to examine the exclusive deals. An AT&T executive told a June 17 hearing the deals spur innovation and help lower prices. Verizon Wireless said this month that new deals with handset makers will last no longer than six months, down from one to two years for most contracts.
“Promoting competition is absolutely a main function of the FCC,” said Genachowski.
He took office June 29 as the Obama administration’s choice to head the independent agency that sets rules for telephone, cable and broadcast companies.
Fostering high-speed Internet connections, or broadband, is a priority for the FCC, Genachowski said.
“There’s absolutely a sense of urgency in Congress, the White House, here at the agency, that we need to make sure that the United States communications infrastructure is appropriate for the 21st century,” he said.
Preparing Broadband Plan
Genachowski declined to say whether the agency would seek to write new rules to ensure that Web companies treat content providers equally as it readies a national broadband plan that is due to Congress by February.
The FCC last year censured Comcast Corp. after concluding the largest U.S. cable company had interfered with subscribers’ Web traffic. A lawsuit by Comcast seeking to overturn the decision awaits oral arguments in the U.S. Court of Appeals in Washington.
“We expect to prevail,” Genachowski said.
“There shouldn’t be any doubt that the FCC will enforce non-discrimination,” he said. “The Internet needs to remain open.”
Genachowski said he has devoted time to meeting with FCC staff.
“My visits around the agency have convinced me that the agency needs to be retooled and revitalized, and that that’s not a controversial proposition inside the FCC,” Genachowski said.
‘Shortchanged’ Consumers
At Genachowski’s June 16 nomination hearing, West Virginia Senator Jay Rockefeller, the Democrat who heads the Commerce Committee that oversees the FCC, said the agency has “shortchanged” consumers. Rockefeller told Genachowski to “fix” the agency.
Genachowski said yesterday that he didn’t want to comment “on where the agency has been.”
In December, congressional Democrats said his predecessor, Kevin Martin, a Republican, abused his powers and created a “climate of fear” at the agency. Martin followed the same procedures by Democratic and Republican chairman alike, an FCC spokesman said at the time.
Genachowski attended Harvard Law School with President Barack Obama and helped shape his technology agenda. He was an adviser to IAC/InterActiveCorp Chief Executive Officer Barry Diller, and earlier served as an attorney at the FCC and a Supreme Court clerk."

Last Thursday while I was in Billings dropping off my daughter at the airport I checked with the Best Buy store in Billings on iPhone availability in Montana. After the clerk told me that their store was not allowed to carry the iPhone he proudly told me that he has a family member in town who had obtained one by using his cousin's Denver home address to get one and sign up with AT & T. So it's legal to own and wear a gun on your hip in Montana but AT & T forbids you to use the iPhone there!

Hello Blackberry Storm goodbye Apple iPhone.