Crude Oil and Fuel Prices Won't Back Down

The van der Valk Gas and Diesel Price Advisory for 4-6-09

The average prices on the West Coast went over $2.30 per gallon for gasoline and $2.45 per gallon for diesel as of today. These prices reflect the latest increases in the wholesale spot market prices for both of those products since the first of the year. This morning the spot market pipeline prices actually did come down 2 cents per gallon for gasoline and diesel but that may not last given the current geo-political conditions in the world.

With all the bad news there is also have some good news "Gas and diesel prices are lower this year". In fact they are about $1.25 per gallon for gasoline and $1.75 per gallon diesel lower than they were at this same time last year.

After setting a record setting average price of $4.764 per gallon in mid-July, the diesel price average is now at $.2264 per gallon, per the AAA fuelgaugereport, falling for 33 out of the 38 weeks by April 6, 2009. Crude oil prices have increased from $33.98 on February 12th to $52.51 a barrel on April 3rd, for an about 60% increase in seven weeks. For every dollar per barrel variance in the price of crude oil, fuel will increase or decrease 2.4 cents per gallon accordingly.

Per AAA the average price for gasoline in the US today is $2.039 per gallon, up from December 29, 2008 when it hit a five-year low of $1.613 per gallon. The average price for gasoline has increased by 42.6 cents per gallon, for about 27% and it has increased in the last 13 of 18 weeks. Still, that price is $1.244 below the same time a year ago.

Normal gasoline and diesel demand will not be recovering anytime soon from the blows dealt by the high prices from last summer. That was right after that the double whammy, with the spreading economic and banking crisis problems, hit us like a ton of bricks.

After a brief rally in September, when hurricanes hit the US Gulf Coast, gasoline was actually selling at below the value of crude oil for much of the fourth quarter in the US. Summer pump prices rising above $4 per gallon prompted many Americans to drive less, but now that prices are back down to $2 per gallon, demand has remained relatively flat from a year earlier.

Tom Petty wrote the following song lyrics applicable to what is happening in today's petroleum market:

Well I won't back down,

no I won't back down,

You can stand me up at the gates of hell,

But I won't back down

Why Are Gas Prices Up While Crude Oil Is Down?

The WTI crude oil price is trading below the $40 a barrel mark after the unemployment rate rose to the highest rate since 1992 at 7.6%. But not even bad unemployment numbers and the stalled stimulus package have been able to keep gasoline prices from heading back up all across the country.

Demand concerns for the moment is the key for oil trading front month WTI at a low of $39.31 a barrel. On the West Coast product prices have both moved down in symphony with both gasoline and diesel down 3 - 4 cents per gallon.

Meanwhile back at the ranch in the U.S. the AAA fuel gauge report shows that price of gasoline is going up almost overnight. Why that is happening has motorists fondly remembering the good old days from yesteryear (or was it just last month?) when gas prices were around $1.50. There was even talk then that we might be heading back down to a buck a gallon. Most of the country will be heading up to $2 per gallon within the next week. The West Coast has already been over that magic $2 mark for the last two weeks.

Motorists have now come to the realization that even with crude oil prices down gas prices just seem to be going up, up, up almost overnight. The usual pundits and analysts are scratching their collective heads and are trying to come up with various reasons as to why that is happening.

The answer is simply that the petroleum market has finally gotten tired of losing money on refining fuel. With refineries either cutting back production, or in at least one case shutting down, the supply has come down to the lower demand level.

On top of that the West Coast refineries are now switching over from producing winter to making summer grade gasoline. That by itself is a planned event but the market loses 10% of its supply almost overnight because of the mandated lower Reid Vapor Pressure pressure. The rest of the country's refineries will be doing the same thing in about a month.

So if you have been waiting for gas prices to drop back down you may now know how the Phoenix Cardinals felt after losing Sunday's Super Bowl game. Or as the line from the movie The Fly goes: "Be afraid, be very afraid! You're afraid to be destroyed and recreated, aren't you?"