Here comes Gustav!

I'm back from a short vacation and first off I have to apologise to some out there who use the blog as a source for my releases on the iminent movement in pricing here in Newfoundland and Labrador. It's been ten years now since I started my predictions on the movement at the pumps or at the heating oil truck, but only the first time I took a vavcation that affected any release I normally would have done.

I will be back with new numbers in the coming weeks so keep an eye. I have not simply just "gone away".

But, then again, pricing issues never will either and, hence the topic for this entry. I've told you about "Hurricane Syndrome" and we have our first test case on the block...

If I were a smart consumer and betting on the markets, I think I would be filing my tank just about now-and again by Sunday.

The reason?...

Hurricane Gustav has been projected to hit the U.S Gulf Coast as early as this weekend and that means that, in the area there is another possibility that there will be refining disruptions as well as potential damage to other oil infrastructure in the Gulf of Mexico.

Ironic as it is, it was on the Labor Day weekend that also saw the advent of two other hurricanes that disrupted almost 20 per cent of overall US refining capacity. At that time here in Newfoundland and Labrador, consumers saw a spike of $1.48.1 a litre at the pumps...

If Gustaf hits the main concentration of oil infrastructure on the weekend it may very well pale in comparison the potential record we could see at the pumps. It may very well be that, if there is major disruption in production or supply, we could see an added 30 cents a litre at the pumps. The only condition that may help us avoid the hit is "what category hurricane will we be dealing with?"

Why do I say 30 cents?

In the week leading up to the Katrina hurricane hit, spot pricing averaged 60 cents a litre. A corresponding increase of 38 cents a litre was realised on the markets but the full impact of any increase back then was absorbed by the Public Utilities Board at the time. It was simply a case of "wait and see' as the news came out. If it was bad on one day, an "allowable" increase in pricing was granted. That scenario can be expected to be repeated again this time around as it did save the consumer some grief-if I can call it that. It saved us from some of the $2.25 a litre prices as they had in some areas of Ontario and $1.89 a litre in Halifax. Our "maximum allowable" turned into the "record" at the time of $1.48.1 a litre that has since fallen. The unknown variable in all this is wind spped. While the NHC currently has a 30% chance of windspeeds over 74 miles per hour, what will the actual category be by the time this one hits Louisiana again?

So, consumer be warned here!

I fully expect the traders to start bargaining in bad faith on the "promise" of a supply disruption-again, and I also expect the panicked analysts on CNN to again help the trader "justify" his numbers as they push for the potential of $6.00 US a gallon gasoline-again. Back at the time of Katrina, a CNN reporter talked about the potential of $5.00 a gallon and helped institute a panic in the central US.

Let's see if they go for a repeat.

Remember where you read it first IF Gustav hits the processing areas as is the promise from the National Hurricane Center and, if it exceeds a category 3 storm, we can expect to see a run in the markets as the sharks have been let loose...

Keep the gas tank full and conserve throughout this one when it hits.

Regards,

George

Update #1: Gustav will now hit shore just west of New Orleans. That puts it a little closer to the Louisiana-Texas border where there is a heavy concentration of oil refining facilities. It wasn't so much the winds of the Katrina storm that shut down refineries as much as it was water and flooding. Gustav is forcast to dump as much as 50 centimeters of rain while it is in the area.

Electronic trading on the New York Mercnatile Exchange will begin at 4p.m Newfoundland time, 2:30EST, to allow traders to "cover their short positions" and to allow for same-time trading with traders in Asia. Gasoline retail pricing along the path of the storm has already increased by several cents a US gallon.

The next twenty four hours will tell the tale on where pricing will be headed. I'd rather err on the side of caution on this one.

Update #2: Gustav has come ashore just slighly west of New Orleans as a category 3 storm. That probably means a little good news on the oil markets as hurricane damage may be minimised. All hinges on the re-start of refineries in the area directly after the storm now as some of those same refineries were closed up due to water damage from flooding rather than wind damage. Some 13 refineries and other distribution and import facilities have been affected so far. We'll keep you all updated here but, we just might all dodge a bullet yet. Question now is, if refineries are closed can other refineries around the US pick up production to meet current demand? Back in Katrina's time, refiners operated at 97 per cent capacity while, as of late last week US refiners operated at close to 86 per cent. Can they pick up the load and prevent a spike?

Update #3: According to Bloomberg, approximately 1.5 million barrels of production has been affected but damage to any refineries has been minimised as a result of the storm being downgraded in intensity. Gustav was originally forecast to hit land with a category 4 or 5 punch but weakend to a category 3 before hitting just west of New Orleans. Some sources are now saying that refining and production will be "back to normal within days". Still waiting on some word of any damage. Flooding could still be a problem as Gustav moves overland and close to other refining facilities close to the Texas border.

In the meantime, oil is trading down as a result of the news. If we hear of no damage in the next day or so, we can assume that there will be no need for any increase in pricing! This was a close one!

Good news and bad news…
Some prices up and others down

Media release

Conception Bay South, NL, August 12, 2008- Consumers in Newfoundland and Labrador will see some changes to petroleum pricing this week but, they might not necessarily like them. That’s from George Murphy of the Consumer Group for Fair Gas Prices.

“There is some disappointing news for the consumer this week. Twelve days data out of a possible fourteen shows that consumers of gasoline will be hit with a 2.5 cent a litre increase at the pumps while heating and stove oil users should see a decrease of slightly better than four cents a litre. I also expect that, with the heating-stove oil number pointing down, it may also be an indicator of the direction that diesel will be headed this pricing session,” said Murphy, researcher for the consumer group.

“Even though oil pricing has been down the past couple of weeks, we’ve seen an abject change in the value of the Canadian dollar, and that has cost the consumer in this country at least three cents a litre at the pumps and even more at the heating truck level in the last two weeks alone. Bad news was also reported from the United States Energy Information Administration when they reported a huge inventory draw against gasoline inventory as measured over the last two reporting periods.

“Oil pricing has been dropping for several reasons, any of which has had monumental impact these last couple of weeks. Demand for petroleum products in China dropped in July month by some seven per cent and the economy is showing some wear in the U.S, especially in the manufacturing sectors. The U.S dollar is continuing to gain some strength back against the Euro and investors are continuing to pull investments out of oil as that important hedge against inflation. We would be more positive about the latter if the Canadian dollar wasn’t so tied to the value of oil. It shows Canadians that they should still worry over high energy pricing this coming winter in spite of the drop in overall oil pricing; it doesn’t mean that the related commodity price will be down too.

“We’re still watching some world geo-political conditions out there that continue to affect the stability of oil pricing. As predicted here in the update some months ago, PPK rebels in Northern Iraq successfully attacked the export facilities in Ceyhan, Turkey and that resulted in a disruption in exports through the Mediterranean Ocean gateway. The situation in Georgia and Russia also promises to play into the markets of there is a disruption to exports although that may play more into European markets more so. The situation between the United Nations and Iran’s pursuit of its nuclear ambitions promises to be a contentious issue in the coming weeks as the United States pushes for possibly more sanctions and Iran’s insistence on the pursuit of nuclear power. We also have the sniffers out waiting for OPEC to pull the plug on some production this coming September if oil continues to fall in value.

“Waiting in the wings is also the weather. Remember that we’re into Hurricane Syndrome season and that means possible market plays against possible supply disruptions in the Gulf of Mexico. We are fast coming up to the three year anniversary of Hurricane Katrina and Rita and the national Hurricane center has also increased its prediction on the number of possible storms. It is promising to be an interesting couple of weeks and well worth watching.”

-30-

For more information, contact;

George Murphy
Group researcher/Member
Consumer Group for Fair Gas Prices

No change to pricing this week

If the price changes at the pumps this week, I don't have it. Even though we've lost some value in the price of a barrel of oil, we really haven't seen a large drop in corresponding spot pricing.

I've been a little busy with newbies in my family this last week so, it's been a case of putting some importance into other things that matter. Normally, I would have posted late last night or earlier this morning but, everything is being backed up here.

Anyways, before I get too far off the topic...

Numbers are showing an "allowable" increase in gasoline based simply on what numbers I have but not enough for interruption to pricing. That little tidbit is based on five of seven days needed to allow the interrupt formula to kick in. We may not get an increase now, but that doesn't mean we won't get it next week. At the same time, there's always some time for spot pricing to back off over the next week too.

In the meantime, heating and stove oils are showing a "down" scenario again. So far, the numbers are pointing down by a mere 1.1 cents a litre, albeit down none-the-less.

One thing I am noticing out of all this "oil dropping" scenario is this: The more we lose on a barrel of oil, the more we lose in value the Canadian dollar against the US greenback. That point so far, means that we can have a better chance of elevated heating and stove oil pricing this coming winter if the trend keeps up. The value of the Canadian dollar is a paramount factor in figuring out how much pricing will be on a day to day basis.

Watch it.

If the US dollar starts to gain value as it has in a couple of days trading last week, then the Canuck Buck will start to lose and consumers won't see the concerted drop in pricing that we've been waiting for.

The perverbial barrel has dropped from a record $147 US to today's $120 US. With that, we've lost a couple more hundredths of a cent because of an oil-based economy.

Regards,

George