"Springtime for Oil Refineries and the US"

The van der Valk Gas and Diesel Price Advisory for 4-7-09

This is in deference to Mel Brooks for using the title of his play as a parody on what is happening in the world of petroleum products. But the springtime recovery of the US economy will be directly responsible for having the rest of the world's economies follow us as well.

That goes for the world of petroleum products as well with demand for gasoline remaining relatively flat compared to last year. In fact we have returned to 2004 levels on the demand levels on gasoline. On-road diesel demand is down the worst with an about 20% decrease in the same time period as last year.

Gasoline prices on the West Coast are remaining over $2.30 per gallon with diesel at $2.45 per gallon today. Yesterday's dip in the wholesale spot market prices for fuel did not have any immediate affect on pump prices. That market looks to be flat again today perhaps down 1-2 cents per gallon. Gasoline pump prices are expected to reach $2.50 per gallon by the Memorial Day weekend given the usual circumstances with ever tightening supplies of summer grade gasoline.

California has seen its average gasoline price jump up 7 cents per gallon since last week Wednesday. About 3 cents of that was the 1% increase in their state sales tax rate. That rate is now as high as 9.25% in some counties in California.

Along with that the wholesale rack and dealer tank wagon prices for gasoline on the West Coast have increased 10 cents per gallon. In California the sales tax is applied a tax on the total cost of the product including federal and state road taxes. In other words 10 cents per gallon increase represents another penny increase in the price for gasoline as well.

This is the usual time of the year when gasoline prices will spike up on any signs that supply will not meet demand. The completion of the cycle, in switching over of inventories of gasoline from winter to summer gasoline, will be April 15th for the West Coast and May 15th for the remainder of the country.

Tomorrow morning the Department of Energy will be releasing its weekly inventory report, which has shown growing builds for stocks of crude oil and gasoline in the past months. At 359 million barrels crude oil stocks are about 40 million barrels or 10% over year ago levels. That alone should keep the WTI crude oil price hovering around the $50 mark. That price is down about $1.50 from yesterday's settle of $51.05 a barrel

Lately crude oil is reacting more to the equities market than basic fundamentals. The oil production cut backs by OPEC are being adhered to at an about 80% rate of the assigned quotas by member countries. The firming for the price of crude oil is also reacting to the weakening US dollar as more money is being printed by the Treasury Department to stimulate the sagging US economy. Crude oil is used as a hedge against inflation by savvy investors.

Summer driving season will be a key indicator of how much the economy is hurting although more people may choose to stay local and drive rather than fly to vacation spots
Refinery glitches and weather related issues such as hurricanes will happen and with supply tightly meeting demand those will be having its usual bumping up affect on prices for crude oil and their finished products. Price of gasoline is expected to go to $3 per gallon in the middle of summer than settle back down to $2 per gallon before the end of the year.