Japan Earthquake Could Test U.S. with $5 Gasoline Prices

The fallout on the fuel market will be severe following the 9.0 Japanese earthquake on Friday, March 11. 2011, since Japan will have to supplement their nuclear energy power production with coal, natural gas and oil-fired power plants.

Information is short and hard to obtain about the status of the nuclear power plants in Japan. Not being a nuclear physicist it is hard to sort the facts from the hysteria but going on past history we are being fed pap by official press officials of the Japanese government about the real situation in dealing with this cataclysmic event. These same officials withheld vital information after the 1995 Kobe earthquake, which killed more than 6,000 people.

We are now hearing and seeing different versions between watching the live feeds on T.V. and Twitter as events enfold and the reports from official press reports. Under the circumstances that may be understandable as the government does not want to cause a panic. But do we believe them or our lying eyes?

Japan is the third largest country in the world in terms of nuclear energy production, following France, and the U.S. which is in first place (see table above). The country gets about 30% of its power from nuclear sources. Reportedly, 11 nuclear reactors and 21 thermal power plants where shut down after the earthquake, and BBC News put the reduction in output at Japan's nuclear power generators at anything from 25% to 50%.

On top of the loss in the power generation capacity, the Wall Street Journal reported that about 1.2 million barrels per day refining capacity in Japan is also shut down after the earthquake disaster. With this much capacity off line, Japan needs to secure alternative means of generating power and petroleum products as well.

Meanwhile, diesel fuel and coal are readily available. Cargoes of diesel fuel can be shipped almost immediately from the U.S. West Coast refineries to meet up with this new found Japanese demand.

The following graph shows the world refining capacity and how much North America and Far East Asia use crude oil for fuel production:

More refineries will have to be brought into production with economics justifying their running at full capacity. It may not cause crude oil to spike up, but it will most likely test whether consumers are going to be willing to pay $5 per gallon for gasoline and diesel fuel in the U.S.

San Antonio-based refiner Valero Energy Corp. (VLO) closed their 235,000 barrels per day located on the island of Aruba in the Caribbean in July 2009, after the plant had been losing tens of millions of dollars a month.

Valero re-started their refinery near the end of 2010 because of improving economic conditions. Valero has since completed refinery wide maintenance at the plant and is ready to go at full capacity. It will be “just in time” to make up the anticipated shortfall in middle distillate demand expecting to increase after the powerful 9.0 earthquake in Japan.

Closer to Japan, one of China’s largest refineries, Sinopec, recently suspended refining operations in Maoming due to high crude oil prices. The 270,000 barrels a day plant stopped delivering fuel and petroleum products in March 2011, because the Chinese government establishes the price for fuels delivered to the market by their local refineries.

Those fuel prices are equivalent to crude oil prices at $85 a barrel versus today’s Brent ICE posting of $113 a barrel. The difference in the allowed fixed price for fuels and the cost of crude oil leaves privately owned refineries with a negative crack spread.

PetroChina Co Ltd, which is Asia’s largest oil and gas company, has been having similar difficulties. It has been losing money in their oil refining segment resulting from an increase in crude oil prices due to the unrest in North Africa and the Middle East.

Diesel fuel prices on the U.S. West Coast are already amongst the highest in the country, and will be impacted by the March 11th earthquake in Japan. The bulk of the price action will likely fall on diesel fuel, but crude oil could be affected as well.

In the end it will not be about the price of Brent or West Texas Intermediate (WTI) crude oil but refineries being geared up to keep up with new found demand from Japan for their fuel products.

About the author - Bob van der Valk is a Petroleum Industry Analyst with over 50 years of experience in the petroleum, gasoline and lubricants industry. He has been often quoted by news media, most recently by Los Angeles Times, and his opinions solicited by government entities, in addition to his daily business of managing large scale supply and marketing operations.

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.

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.

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.

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.

What can be done about diesel fuel prices?

Dateline: Terry, Montana, U.S.
July 4, 2009

The big holiday and vacation season is once again upon us. Canada and the U.S. just celebrated their respective national birthdays and all eyes in our industry are being kept on whether consumer confidence has re-instilled itself.

Diesel fuel is one of the most critical commodities in keeping the Canadian and U.S. economies rolling. In our transportation and construction industries almost all aspects of operations are fueled by diesel engines. Rising diesel fuel prices can translate to increasing costs of products and services. In order to know what can be done to slow down this increase, you as a consumer need to be aware of its causes and find creative ways to save money on your fuel usage.

There are several basic elements that determine the worth of a gallon of diesel. About fifty-five percent of the cost of diesel reflects the price of crude oil, which is raw material for diesel production. Crude oil is brought from the oil fields to the refineries where the ultra-low sulfur diesel, among other petroleum products, is extracted.

Given a barrel of crude is 42 gallons; the average refinery is able to produce about 8 gallons of diesel and jet fuel or 20 % of the total. About half of the barrel is made into gasoline with the remainder in low end bunker fuel oils and other petroleum products. Refining accounts for nearly fifteen percent of diesel fuel cost.

The remaining elements of the cost of diesel fuel are government taxes and the expense of advertising and delivery. A ten percent excise tax is levied onto all fuel products that are refined in Canada. Although foreign fuel can avoid this tax, it is generally cheaper to buy locally refined fuel as import taxes generally are passed along to the consumer. Marketing and distribution make up about five percent of total diesel fuel cost, but this can often be the most volatile factor affecting the value of diesel fuel.

This is where the diesel fuel consumers may have a sure fire way to save money on their cost for operating their diesel trucks and equipment. They can make arrangements with an on-site fueling company like 4Refuel headquartered in Langley BC, Canada. They currently service most of the Canadian market and recently expanded into the U.S. West Coast market by opening an office in Lynnwood, Washington serving the Greater Seattle area.

Saving fuel and lowering consumption is not only good for the environment; it decreases demand, and ultimately your cost. The factors that affect diesel fuel prices seem complex, but an understanding of the basic principles can empower the individual consumer to make the right decisions.

Bob van der Valk resides in Terry, Montana and is the Fuel-pricing Analyst with 4Refuel LLC in Lynnwood, Washington. He can be contacted at (971) 678-2975 or e-mail him at: bvan@4refuel.com

Good news: Prices are up for crude oil but down for gasoline

Dateline: Terry, Montana
July 1, 2009

The price of crude oil has been hovering around $70 a barrel for the last week meanwhile gasoline pump prices in the U.S. and Canada are down by about a nickel a gallon or 1 cent per litre during that same time. The average price for a gallon of gasoline is $2.63 today per the AAA fuelguage report. Montana’s gasoline prices are averaging $2.71 barely nudging down from a week ago price.

If there seems to be no correlation between the two, it is because U.S. and Canadian refineries are just now running crude oil they purchased earlier this year. The typical shelf time in shipping from the well to the refinery is about six weeks and crude oil in the tank at the refineries is still at around $40 a barrel. So who do we blame? The greedy oil companies, those evil Wall Street speculators or is it just plain simple Gasoline Marketing 101?

Crude oil accounts for 55 percent of the cost of gasoline. The other big chunk is the federal, state and local taxes, which make up 24 percent of the cost. Then we add refining costs and profits of 15 percent to the cost of gasoline. Distribution and marketing costs made up the final 6 percent of the cost.

The Petroleum Marketers Association reports the profit margin at each local gas station of between 3 and 15 cents per gallon of gasoline.

This morning we wait for the release of the weekly Department of Energy's inventory statistics, which will give some direction to the market. Other factors may be at work as well with a myriad of glitches at U.S. refineries spooking the traders into shoring up their deals before the July 4th weekend. With just three trading days left in the week no one would knowingly get caught at the end of a short stick in keeping physical product flowing into their tanks.

Armed conflicts and threats around the world are receiving the usual buzz by the paper traders and one that is having an immediate affect is in Nigeria. That has resulted in almost 1 million barrels per day of crude oil being cut off from being shipped to the U.S.

The Shell Oil platform and shipping terminal in the Niger Delta was blown up by militants last weekend interrupting vitally needed crude oil from being loaded. The Nigerian government has desperately been trying to deal with the situation and has even offered amnesty to the dissidents if they lay down their arms.
Speculators are hard at work trying to make money by betting on any outcome. But the adage that “For every winner, there is a loser” applies to the investment business just like it does in sports.

Bob van der Valk resides in Terry, Montana and is the fuel-pricing analyst with 4Refuel Inc. in Lynnwood, Washington. He can be contacted at (971) 678-2975 or e-mail to: tridemoil@aol.com

His viewpoints and previous articles about the petroleum industry can be found at web site address: http://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.

The insider’s secret on how gasoline is priced

Dateline: Terry, Montana
June 18, 2009 11:00 AM MDT
By: Bob van der Valk

After emigrating to the U.S. from Holland, at the young age of 15, I learned to speak English by watching Saturday morning cartoons and listening to Elvis Presley songs on the radio.

English was a mysterious language to me and it took a while before I caught on to the finer nuances of speaking English. The kids at North Miami High School in Florida thought that my Bugs Bunny and Elvis Presley voice impressions were a riot and I l quickly was able some good friends.

The U.S. and Canadian motoring public learn much about the cause of the wild gas price gyrations from the same type of sources.

Crude oil prices are usually made out to be the culprit and blamed by the media for the gas price roller coaster rides. But is not the only factor in the current round of fuel price spikes. Today gas prices tend to influence and support crude oil prices. That opinion runs counter to the conventional view that crude oil drives gasoline prices.

It is the inverse of what occurred with fuel prices in 2007 and early 2008 in the petroleum industry. Since August last year, fuel prices have been driving crude oil prices up and down.

It is my prediction that crude oil may hit $85 in the near term and then ebb back down to $40 by the fall of this year. By Christmas 2009 the price of gasoline in the U.S. should be around $2 per gallon with Canada at 90 cents per liter.

In early August 2008, I made a forecast, published in the Pasadena (CA) Star News, that crude oil and gasoline prices would go down in the last part of 2008. In August, crude oil was still hovering around $140 a barrel and gasoline was over $4 a gallon in the U.S.

By December 2008 the average price of crude oil was $33 a barrel and gasoline was at $1.60 per gallon. That severe drop was aggravated by the economy’s plunge into its recession along with the financial crisis.

I made a prediction in the January 2009 that gas prices would hit $3 per gallon again by the summer as quoted in the following article:

http://www.insidesocal.com/news247/2009/01/gas-prices-could-reach-3-by-su.html

I have been in the petroleum industry for almost 50 years with all that time spent in the refining and marketing (R & M) end of the business. In my early career I worked in the retail and wholesale departments for Union Oil Company of California a.k.a. Unocal in Los Angeles. This should qualify me as the ultimate insider and expert on the way the petroleum industry prices gasoline.

The U.S. petroleum industry has returned to the basics of refining crude oil into gasoline. Major oil companies have the ability to explore and produce for crude oil and bring it up out of the ground for around $40 a barrel. Any amount over that price is pure profit to the oil companies.

The competitive battle between Exploration & Production (E &P) and R & M managers at the oil companies is back on. Each cannot stand to see the other make all the profits for their company.

In the days before the price of crude oil became paper driven, the R & M department used to have knockdown-drag out fights with the E & P department about the price of crude oil delivered to our refinery gate. In those days, they would price crude oil based on price posted at the well plus transportation costs. R & M would then add the cost to refine the crude into fuels and add the marketing cost to determine the wholesale or dealer tank wagon prices.

Today, they take the easy way out and relate their refinery gate crude oil price to the West Texas Intermediate (WTI) crude oil price plus or minus a discount for quality and location. For instance, the posted price for Elm Coulee crude oil in Richland, Montana is currently fetching the WTI daily posted price less $10 a barrel at the well head. R & M still has to add their costs to that price and relate that to the current wholesale and retail prices in order to stay competitive.

In March of 2001 Tom O’Malley, then CEO of Tosco, got tired of losing money for part of the year then trying to make it back during the spring time and summer driving seasons. He announced to his refining and marketing management team at a company meeting in their Phoenix headquarters, that they would tie their retail prices to the wholesale spot market price for gasoline and diesel.

The petroleum market is driven by trades in paper barrels for crude oil and finished products on the New York Mercantile Exchange (NYMEX). That in turn gives indications to the spot market and it has become a case of the tail wagging the dog.

The other major oil companies soon followed suit and since then the pipeline spot market has been driving fuel prices up and down. Today’s gasoline prices are based on a “What the market will bear” strategy by the major oil companies. In the 4th quarter of 2008 and 1st quarter of 2009 refineries lost big time money. Some of them, including the Big West refinery in Bakersfield, were forced to close down due to poor economics. This trend will continue as long as the big money investors stay on the sidelines and cause more havoc in the petroleum markets.
Goldman Sachs & Co., Morgan Stanley and other large investors are able to sidestep regulations that limit investments in commodities such as crude oil. They are investing on behalf of pension funds, endowments, hedge funds and other big institutional investors, in part as a hedge against rising inflation. Crude oil investment is used to offset the weaker dollar with the money going back and forth as the world economy continues its slow recovery
A stream of financial deregulation under the Clinton administration, culminated in the Commodity Futures Modernization Act of 2000. These over-the-counter markets are 10 times larger than the futures market with no position limits and almost no regulations to control their investments.
I have now revealed my secrets on the mystery of fuel pricing to you. I hope that the answer is as simple as watching those Saturday morning cartoons in order to learn to speak English.

Bob van der Valk is the Director of US Branded Licensing with 4Refuel Inc. in Lynnwood, Washington and can be contacted at (971) 678-2975 or by email at: tridemoil@aol.com

Bob’s web site address 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.

Will Motorists Suffer a Memorial Day Gas Price Hangover?

Dateline: Terry, Montana
By: Bob van der Valk
05-26-2009 10:00 AM MST

The July WTI crude oil price is a basic no change down 21 cents to $61.46 a barrel. The spot market gasoline price is up 1 cent per gallon and diesel no change so far this morning. The average price for regular unleaded gasoline is $2.421 per gallon in the U.S. with the West Coast at $2.667 per gallon.

U.S. motorists were expected to drive a little more this Memorial Day weekend with renewed optimism that the economic slump has hit bottom. Expectations of gasoline use were put at 1.8% higher than Memorial Day last year with the economy in the recovery mode.

The consumer confidence index for May jumped to 54.9 from 40.8 in April 2009. The index is now at its highest since September 2008 based on a graph published by the Confidence Board based on research done by TNS, Taylor Nelson Sofres PLC is the world’s largest custom market research company in 80 countries, shows the following:

Over the weekend we did have some bad news with the possibility that Nigerian violence will cut oil output. ChevronTexaco was forced to cut off about 100K barrels of crude oil supply representing about one fourth of the total output for Nigerian crude oil. Most of that crude oil is destined for U.S. refineries and any interruption in the supply of crude oil will have an immediate impact on prices.

On top of that North Korea successfully set off an underground atomic blast and also fired off a couple of missiles over the weekend. This was in an apparent attempt to prove that they are going to be capable of launching an atomic weapon at any of their enemies.

By far the most positive comment for stability in the immediate future of oil prices was the statement released by the Saudi Arabia oil minister Ali al-Naimi over the weekend. He stated that OPEC will likely stay the course with regards to production cuts at the upcoming meeting this Thursday in Vienna. This was an advance signal for discussions between him and Steven Chu, the U.S. Energy Secretary, to show support their in assisting the economic recovery.

Take a little "Hair of the Dog" if you are having a weekend hangover but keep your gas tanks full as gasoline prices are not expected to come back down before the fall of this year.

It’s a Real Gas to Talk Gasoline Prices

Dateline: Terry, Montana
May 18, 2009
By: Bob van der Valk

My wife and I recently struck up a conversation with a very nice elderly couple while shopping and waiting in line to have some fabric cut at the Jo-Ann store in Bellevue, Washington. The wait was almost 45 minutes so we had plenty of time to discuss various subjects. Our conversation quickly turned to the state or our economy after comparing how many years each of us have been married to our spouses.

Happy Cinco de Gaso

It is Cinco de Mayo in the US to celebrate Mexican heritage and pride. We also commemorate this day in Holland as Bevrijdingsdag or Liberation Day. It is celebrated each year on May 5th in the Netherlands (the official name for Holland) to mark the end of the Nazi occupation during World War II.

The nation was liberated by Canadian troops, with the assistance of the British and American armies. After the liberation in 1945, Liberation Day was commemorated every 5 years. Finally, in 1990, the day was declared to be a national holiday with the liberation celebrated every year.

The provinces of Utrecht, North and South-Holland were the last provinces in Holland to be liberated. The population in that area suffered greatly during the winter of 1944-45 from starvation and bombings. My family lived in The Hague, South Holland and was able to survive the hunger winter. We eventually were able to immigrate to the US on special visas issued under the Refugee Relief Act of 1954.

We have been in the US for almost 53 years and I have spent 50 of those working in the petroleum business. My family was fortunate to have been given the opportunity to live and work in this country with its many generous people.

The June WTI crude oil price is down 50 cents back down to below $54 a barrel. The spot market prices for gasoline and diesel are down 2 cents per gallon this morning as well.

The oil traders are now looking ahead to the weekly Department of Energy inventory statistics being published tomorrow morning. Gasoline prices will spike up if they show another big draw for gasoline stocks as they did last week. This will be regardless of crude oil stocks anticipated to increase once more.

May is the typical month in which summer driving season starts. Gasoline prices will be staying firm with lower than normal supplies available. Refineries are also keeping a tight hold on production

OPEC is also providing support for the oil price by indications that they are not happy with $50 a barrel and hinting at further production cuts when they meet later this month in Vienna, Austria. Warren Buffet emerged from his office and sounded positive notes providing support to the raw commodity markets as well.

Another Day - Same Old Story for Crude Oil and Gasoline Prices

The van der Valk Gas Price Advisory for 4-17-09

Dateline: Issaquah, Washington
April 17, 2009 12:30 PM PST
By: Bob van der Valk

The May WTI crude oil price is up 35 cents to $50.33 a barrel at the close today. The wholesale spot market price for gasoline and diesel went up about a penny per gallon almost in concert with the crude oil price

It's another day - same old story in the petroleum markets.

First - The US Federal Reserve announced a 1.5% month on month decline in industrial production and capacity yesterday. Crude oil prices reacted the other way of expectations by going up this morning in reaction to that bad news

Second - Last week the International Energy Agency, headquartered in Paris, lowered its forecast for global oil demand for this year by 1 million barrels a day down to 83.4 million barrels, which is 2.4 million barrels a day below the 2008 level.

Third - US crude oil inventory levels are now at a 20-year high and refineries are running at just 75% of their current capacity. Fuel conservation has forced the oil companies to reevaluate their 2009 game plan in view of the uncertainties in our economy.

Fourth - Gasoline prices went up some more this week. It's no wonder the average motorist cannot figure out what will be happening to fuel prices in the next month or for that matter the rest of the year. The US average price for gasoline is hovering around $2.05 per gallon today per the AAA fuelgaugereport. The price on the West Coast is still around $2.32 per gallon.

Crude oil will continue to hover around the $50 per barrel mark when at the same time gasoline and diesel prices will be increasing steadily upward. On the West Coast the average price for gasoline is predicted to be $2.50 by Memorial Day and $3.00 by the middle of summer if the current trend continues but... you never know what may be around the corner when a world crisis, weather or refinery problems causes prices to go haywire again. Retail diesel prices will stay about 10 cents per gallon above gasoline prices. The remainder of the country will follow suit and their average price for gasoline will be around $2.50 per gallon by mid-summer.

Refiners have been successful in putting their foot firmly on the hose to constrict the flow of fuel to the market. They have reduced utilization below capacity before their usual planned, maintenance-related springtime reductions. Some shut production down completely earlier this year in order to perform spring maintenance known as turn-a-rounds. The combination of planned and unplanned reductions put 2009 refinery use at its lowest level in the last four years.

The US petroleum industry understands one thing very well and that is that you have to continue to make a profit in order to stay in business. It's either that or going broke and then they will be out of a job.

Go aplusk!

Highway Robbery for California Gas Station Owners

Samuel Johnson said: "Hell is paved with good intentions." It seems that saying applies to unhappy independent service station owners in California today. They made it a through a down turn in the economy and barely survived a recession that is still taking its toll.

Then along comes the bad news in the form of inaction by the California Air Resources Board (CARB) on the letter from Governor Schwarzenegger requesting a delay or holiday in the implementation date set for the Enhanced Vapor Recovery Phase II regulation.

Air Quality Management District personnel have been out in force in the field for the last 10 days. They have been writing up their Notices of Violation to any service station property owner not meeting the mandated April 1, 2009 deadline.

Collateral damage has been caused in the form of gas stations and truck stops being forced to lock up their gasoline pumps or worse yet shut down their whole facility. By CARB’s own count about 5% of the gas stations, designated as Gasoline Dispensing Facilities (GDF), have already done just that.

The number of stations being reported as being in compliance by CARB and the Air Districts are confusing at best.

In some cases stations with pulled permits are already being counted as being in compliance when in fact they have not yet been fully certified. A good faith effort apparently suffices just to make their numbers look better.

By any count almost 40% of the 11,500 California gas stations have not fully complied with the EVR Phase II regulation. Of that number about 1,000 are expected to hang up their nozzles for the last time and lock up their pumps by December 31, 2009. That is the drop dead date by which station owners will have to make the investment to install the vapor enhancement equipment or be shut down by the air districts.

Fines are being imposed based on the level of compliance and volume of gasoline pumped ranging anywhere from $1,000 to $4,000 per month for each station.

Apparently this was meant to serve as notice by the regulators to recalcitrant owners, who did not heed the warnings given out as early as 2000, that the rule would be enforced. Fact of the matter is that the regulation passed through the approval process by CARB and the California legislature without those technologies even being in place.

Major oil companies jumped on the band wagon early by insisting that the law be enforced if they were going to be making the required investment. The service station equipment manufacturers went to work and one system was approved by CARB in 2005. As late as 2008 two more systems were certified and at this writing one more is in the works to be approved by CARB.

As magic would have it each system became more economical than the one before. It was even made it possible to retrofit the nozzles being used by stations equipped with the Phase I equipment. The earlier approved system was only able to interface with its own equipment and was not adaptable to the other systems. Initially station owners had to make a choice to replace their whole system or wait it out until 2008 to retrofit their existing nozzles and install the scrubbers with the CARB certified equipment made to fit their own equipment specifications.

Up jumped the devil just as things were beginning to look up for the independent service station owners. The recession came along with the resulting financial tightening of the credit market. Station owners in the process on obtaining loans were put on hold and told to wait until the banking situation straightened itself out.

Accusations are now being made by regulators and clean air organizations such as the Sierra Club that this group of station owners is not doing their part for cleaner air in California. The station owners are citizens, who live and breathe the same air just like the rest of their fellow Californians. In the past they have made improvements to their facilities to aid in the clean air effort and have plans to continue to do so in the future.

In-Station Diagnostic (ISD) portion of the law takes affect in a year and the EVR Phase II compliance date could have easily been coincided with the implementation of that program. One program interfaces with the other when both of them installed at the same time could save the owners money.

Also starting in 1998 new automobiles in California had Onboard Refueling Vapor Recovery (ORVR) systems installed on them. The ORVR system captures the gasoline vapors that are displaced when gasoline is dispensed to the vehicle tank and stores those vapors in a canister filled with activated carbon. When the vehicle engine is started, gasoline vapors stored on the carbon are purged and burned in the engine. The ORVR system on new cars interferes with the ISD system creating false readings that throws the system into alarm at the station.

As of 2008 about 65% of the automobiles and light trucks in California are equipped with the ORVR system and about 94% of them will be so equipped in another ten years. In other words the ORVR and the EVR Phase II system will overlap each other recapturing the gasoline vapors during fill ups. California station owners will have spent a lot of money for little gain all in the name of attaining cleaner air.

Reasonable people should be making reasonable choices and this time Californians are going to get hurt right where it will hurt them the most – in their pocket book.

It’s time for each of us to open our windows and stick out our heads and yell like broadcaster Howard Beale did in the movie Network: “I’m mad as hell, and I’m not going to take this anymore”.

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