Get In The Mood For Crude!

THE VAN DER VALK GAS PRICE ADVISORY FOR 3-27-09

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.