My buddy the gas station owner says they are going on allocation due to hurricane damage to gulf coast production. Stations may be running out of gas. Just like the 70’s again. FWIW
Hold onto your wallet when it comes time to fill up! Break even in the Bay Area before profit or credit card fees (up to 9 cents per gallon) is 3.05 right now for unbranded gas. That will put the street price to 3.15 to 3.25 in the next few days!
The allocations are based off of previous month’s volume, 100% /30 to give a daily average. There are some wild fluctuations in the markets ± 15cpg in an hour in the unbranded market. The allocations are set to prevent folks from gaming the system by buying branded product and bringing it to an unbranded station or account. Some of the majors have a 35cpg penalty for going over your allocation. This will not affect the retail market supply, mostly wholesale.
Dave
What cracks me up is that the US oil companies hedge the prices they pay for crude and buy on the futures market at fixed long term prices.
A hurricane does not effect the price they pay for crude one cent…yet they have no problem spinning the consumers a line of BS to explain their sudden price hike.
CA has the highest emmissions standars in the US and we don’t use gulf crude. I believe most of our oil comes from CA, the middle east and a little from Alaska and its almost all refined in state. However that doesn’t stop them from telling us the hurricane is to blame.
You might be right if you ignored the market and, well, economics in general. Consider the increase in demand for crude in the rest of the country, and what impact that might have on the crude pumped locally or imported from other states/countries. Also consider that while CA may not be able to burn fuel refined for Texas, Texas can certainly burn fuel refined for CA.
I fully understand golbal economomies. Price spikes shouldn’t happen in this market, especially ones that are driven by one time events. Wars, political unrest yes…hurricanes…no way. Its just gouging.
So if I am understanding you correctly, you do not think there will be a supply problem at the retail pump level in CA?? Is the allocation from the prior month a percentage of their volume?
**Its just gouging. **
Agreed…I’m sure we can do a recent search of profit announcements and most, of not all, of the big oil companies showing record profits. Go figure.
Witness: Chevron station, corner of San Ramon Valley and Crow Canyon…yesterday, premium $3.01; today, $3.09.
“Price spikes shouldn’t happen in this market”
What about the disruption of the flow of oil to the refineries? What about the lack of production from the gulf? What about the shutdown of some refineries due to flooding? All of these will have an effect on the global price. Just because CA doesn’t buy oil from the gulf doesn’t mean that a disruption in production within the gulf isn’t going to affect CA’s prices. If this disruption causes the price of oil to rise on the open market by 10% that price increase isn’t going to be felt just in the gulf where the disruption occurred, but rather over the entire globe - hence the global market.
The price spikes from these one time events occur more because of refining capacity and the hurricane’s impact on that than the actual cost of a barrel of oil. As you said, the refineries and such are buying long term contracts at defined prices. They aren’t typically buying on the spot market. As the flow of oil into and gas out of the refineries slows down and demand doesn’t slow down in pace you will see higher prices. Simple economics.
I’ll keep on riding my bike in CA’s smog…, the behemoth car craze will thrive a little longer…, those oil guys are going to profit from the storm, and I will have to watch people looting for food in the US…
Where that punk thread?
“those oil guys are going to profit from the storm”
The companies that didn’t have a refinery get hit by the storm will profit. Those that did, will lose big money.
http://www.chron.com/cs/CDA/ssistory.mpl/nation/3330823
“Not everyone loses when a storm hits: the offshore service companies will gain from repair work while onshore oil and gas producers profit from higher prices…”
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Shouldn’t the actual price of oil drop in this case?
If indeed the refineries are shut down we are in essence being forced to use less fuel, no? Thus we are actually using less oil…so actual oil prices should drop.
I’m guessing however that will not be the case. Mostly because our actual usage will not be less. Also I’m guessing that the refineries will “somehow” be able to meet the demand. If not we should see stations without gas, cars without gas, and lower oil prices.
~Matt
Not replying to anyone in particular…
go invest in a natural resources mutual fund - I have made more from high energy prices than I could ever spend on gas…
My personal choice is RS Partners Natural Resources Fund… Morningstar 5 star…
and no more whining about high gas prices…
You’re article references EOG which has 1% of their production in the area hit by Katrina. I think they’ll do pretty well.
What about the fact that the port was shut down for a while? They get something in the neighborhood of a million barrells in that port a day. Whoever owns the facilities at that port isn’t making any money.
What about the 17 refineries in Louisiana (process around 3 million barrelss a day) that were shutdown? Whoever owns those refineries isn’t making any money.
The huge corporations (BP, Exxon, etc) have their production and processing spread out around the world so one storm or one catestrophic event isn’t going to hurt them too much. But, the drop off in production at one refinery can’t be picked up at another so actual output is less. The prices are higher, but are they going to be high enough to account for the drop in volume?
Things aren’t as simple as most people want to think they are.
You are right: if I have to breath those fumes daily, as well as place my head at the level of those gas guzzler bumpers, I might as well try to profit from it…
"If indeed the refineries are shut down we are in essence being forced to use less fuel, no? Thus we are actually using less oil…so actual oil prices should drop. "
We aren’t being forced to use less fuel, yet. The gas companies don’t work on a just in time inventory system. They are shipping out what they had in their inventories and there are still refineries that are up and running. Just not as many.
“Mostly because our actual usage will not be less.”
This is true for now.
"Also I’m guessing that the refineries will “somehow” be able to meet the demand. If not we should see stations without gas, cars without gas, and lower oil prices. "
We better hope they get the refineries back up and running soon. Personally, I don’t want to see huge lines waiting and hoping that a given station has gas.
Ok but my point is…unless we do see lines and shortage we really aren’t out pacing supply, simply using “reserve”. In essence we are paying more money as “insurance” to make sure or at least to attempt to influence people to use less fuel…which won’t happen.
So other than to try and curb consumption, which won’t happen, there is no real economic reason for higher prices.
Of course one could make the argument that we are indeed outpacing supply, just that we haven’t used the reserve yet…and really don’t want to. So why instead do they not raise the prices once the reserve is depleted rather than speculating tht the reserve will be depleted?
~Matt
Makes sense to me.
Also, don’t blame the poor guy at the gas pump. He has a devil of a time making money in this kind of market.
"we really aren’t out pacing supply, simply using “reserve”. "
You sure? If we are producing X, but using X + Y I’d say we are outpacing our supply. It’s kind of like having an emergency fund of savings. Do you get worried only when that fund is gone, or do you get worried when you have to start using it to cover daily expenses? Me, I get worried at the beginning.
"So why instead do they not raise the prices once the reserve is depleted rather than speculating tht the reserve will be depleted? "
I think the price issue may be a little separate discussion. They raise the prices because people will pay it. Isn’t that the basics of capitalism? To go back to your original question of “if we are being forced to use less fuel shouldn’t prices go down?”
No, because everyone will still want to use the same amount of fuel so demand won’t drop until the price RISES to such a level that enough people can’t afford it so the demand decreases to be in line with supply. Just think about diamonds. Every girl wants a huge one, but there aren’t very many of them so the prices have to stay ridiculously high to price the majority of people out of the “huge” diamond market.
“Also, don’t blame the poor guy at the gas pump. He has a devil of a time making money in this kind of market.”
His profit typically stays the same, something like a nickel a gallon.