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Monday, September 21, 2009

Prepare for a drop in diesel and gasoline prices

September 20, 2009 5:30 PM MDT

You will soon be paying under $2 per gallon again for gasoline and diesel fuel and crude oil will go back down into the 40's. So you can make plans for that trip to see the grandparents for the holidays as well as give the economy a much needed boost. Demand for gasoline in the United States typically falls after Labor Day due to vacation season ending. For the week ending September 4, 2009 demand for gasoline was at its lowest point since January 9, 2008 according to MasterCard Advisors LLC.

Inversion of diesel fuel versus gasoline prices has not been the case in the United States since the Rita and Katrina hurricanes hit the Gulf Coast in August 2005. That event had a major long term impact on inventories of gasoline, distillates and lube stocks on both side of the border. About 25% of the U.S. refinery capacity is located on the Gulf and was severely affected by the weather phenomenon.

Money has been poured into the commodities markets recently as the U.S. dollar fell against the Euro. Crude oil prices have risen from a low of $33 to $72 a barrel last week.

For month investors months have used crude oil as their hedge against inflation, betting that oil prices will likely increase as the economy improves and global supplies start to shrink.

So far 2009 has turned into the first normal year for the petroleum markets since 2004 due to the absence of the high roller speculators and adverse weather conditions. Those investors were burned in the big oil price freefall during the second half of 2008 by following bad advice from their investment brokers.

In August 2009 the U.S. Security and Exchange Commission took initial steps to enforce the strict limitations on dealings between bankers and stock analysts. The law requires investment firms to engage in “fair dealings with customers” and prohibits in-house analysts from issuing opinions and research reports that are at odds with their true beliefs about the market. These opinions are spread fast, far and wide utilizing today’s high tech communications.

The market is also very nervous after news that the Chicago Mercantile Exchange (CME) Group, which runs the New York Mercantile Exchange (NYMEX), notified traders and brokers of tighter enforcement of existing position limits on NYMEX, CME, and other exchanges as of September 14, 2009.

US oil refiners, who were producing diesel in record numbers last year, reversed course earlier this year and made their refining stream fall in line with the flat demand for gasoline and the ever shrinking demand for diesel fuel. Refinery runs have drifted down to 86.94% of capacity from the previous week's 87.2%. Inventories of crude oil and its finished products are at all time high.

That will have the affect of starting the downward slide for gasoline and diesel fuel prices with the price of crude oil following right along.

Bob van der Valk is the Director of US Branded Licensing and Fuel-Pricing Analyst with 4Refuel Inc. in Lynnwood, Washington and can be contacted at (425) 216-9072 or by email at bvan@4refuel.com and web site: http://www.4refuel.com/

Bob’s professional web site 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, September 3, 2009

Gas prices will fizzle out by October

The van der Valk Gas Price Advisory for September 1, 2009
Dateline: Terry, Montana
We have had some dog days here in Terry, Montana this summer and the price of gasoline has been scorching upward right along with the heat. The spot market for gasoline and diesel prices dropped like a rock Monday, but Tuesday morning brought new hope and both of them are both back up. Gasoline is heading the pack but the price of crude oil is back down some more to $68.05 down $1.91 a barrel for the day.
For a further explanation on why gasoline prices are going up while we are still suffering from a recession we look toward the stalwart of all banking institutions, Bank of America (BAC), and its subsidiary Merrill Lynch.

In a report to investors Francisco Blanch, head of commodities research at Merrill Lynch, said that investors are flocking back into commodities after substantial withdrawals in the second part of last year, on the back of rising prices and a recovery in risk appetite.
"Our estimates put the total amount of money currently invested in commodity indices at about $125 billion, up from a trough of $80 billion dollars in February," he said.

But it does not explain that people filling up their tanks are paying more and driving less due to a slacking economy. The unemployment rate has almost doubled from 5 % in April 2008 to 9.7 % in July 2009 per today's U.S. Bureau of Labor Statistics.
Crude prices have been driven higher since the first of this year by a combination of OPEC capacity cuts and continued strong demand from Asia, particularly China and India. China’s oil demand in July increased 3.5% over the same period last year as imports continue to rise. This has pushed the price of crude up even though consumption is down around the world. But the winter months will exacerbate this already clouded picture with crude oil expected to steep downward from the current $70 to $40 a barrel.

Crude oil and gasoline prices will be scorchers for just another month and like comets fizzle out over the horizon with a trail of rocks tailing behind. Fall will bring welcome relief to the exhausted gasoline consumers. The other good news they will be enjoying is lower heating oil and natural gas prices. Diesel prices will move down with crude oil prices and red dye diesel will be down to $1.50 per gallon in time for a cold winter predicted for most of the country. There seems to be no floor on the price of natural gas, which is now at around $2.50 per million cubic feet versus $16.25 just a year ago.