Prepare for a drop in diesel and gasoline prices

The Crude Reality, September 20, 2009 5:30 PM MDT -- You will soon be paying less than $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.

The difference in prices has not  yet occurred in the U.S per the AAA fuelgauge report as of September 15, 2009:

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:  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.