Tuesday, July 23, 2013

Could Gasoline Spike To Over $5/Gallon Leading Into The 2014 Elections?


March 22, 2020: my, how things have changed. Saudi again plans to flood the world with oil, as does Russia. WTI drops to $20/bbl. Gasoline as low as 99 cents in Oklahoma City, OK. 

November 27, 2016: the price of gasoline never happened; in fact, just the opposite. Saudi "opens the taps" and the price of oil plummets, as does the price of gasoline. The Saudi decision is called the "trillion-dollar mistake."

December 9, 2015: gasoline hitting new lows, now down to about $1.99 across the US; WTI down to $37/bbl. 

July 26, 2013: ethanol demand is at an 11-week low. Cue up Connie Francis.

Later, 1:40 pm PDT: absolutely amazing. I just posted the story below -- mostly because I finally understand RFS and RINs, and then a link to this article is tweeted to me: the AAA has grave concerns about E85, though the organization has trouble saying it in so many words. Don't you just love it? The AAA can see the writing on the wall, also. Wow, a lot of impending train wrecks in 2014.

Original Post 
Save this one for the archives. No one knows but these are some"givens":
  • Saudi has said very clearly they intend to cut back on oil production when they meet in December, 2013
  • The Oil Drum says US shale won't be able to make up the difference; "Red Queen" effect
  • the Chinese have said they won't tolerate a GDP less than 7 percent (drives oil consumption)
  • as the global economy improves, demand for oil will increase (unless offset by oil prices)
  • WTI-Brent spread has narrowed, though it may be only temporarily
  • experts say the renewable fuels standards will raise the price of oil (Oil & Gas Journal)
I haven't followed the renewable fuels standard discussion; it never interested me. It seemed to me to be another shell game: the government mandating "something" but allowing producers to get around the mandate by trading/selling/buying virtual 'bitcoins."

As long as the "bitcoins" were costing the producers pennies, no one seemed to mind, but when the experts warned Congress that everything suggests these "bitcoins" will result in a (good news) rise of 50 cents/gallon to as much as (bad news) $1 a gallon spike next year, even I got a bit interested.

Congress is also getting concerned: the writing is on the wall. Repeal of the RFS is critical but it won't happen (Senate Democrats; Iowa farmers who vote in the early primary). So, at best, Congress is looking to "fix" the mandate. I don't know how to fix it except to issue more "bitcoins."

The timing of the Oil & Gas Journal article could not have come at a better time. I had just posted the note reminding myself that the President and his former Director of Energy both wanted to see "significantly" higher gasoline prices when I saw the OJG article.

The Oil & Gas Journal is reporting:
The increase for gasoline with a 10% ethanol blend could be as little as 20¢/gal, but only “under somewhat unrealistic and favorable assumptions regarding enormous gains in market penetration and consumer acceptance for E85,” it said. A spike of 50¢-$1/gal is more likely, the July 22 study added.
That paragraph can be hard to understand.

It says: the price of gasoline will increase by as little as 20 cents/gallon next year, simply due to the President's mandate to increase the price of gasoline.

However, that 20 cents/gallon is based on wildly optimistic assumption. Most likely the increase, again, according to the experts, the increase in gasoline will be 50 cents/gallon at the pump, and it is very possible gasoline could increase by $1/gallon at the pump simply due to presidential whimsy. Yes, I know it took Congress to pass the legislation but the president advocated for it, and signed the bill. This is not rocket science.

So, place this in the archives and check on the price of gasoline next summer (2014). 

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