Expect a CPI Energy Surge in October Due to Rising Gasoline Prices

October 9, 2022

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3:05 pm

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52 comments

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Economics

Unleaded Gasoline Futures

Unleaded gasoline futures are the key input into the price of gasoline.

Prices started and ended September near $2.37. Don’t look for much CPI help from gasoline in September.

AAA Gasoline Prices

On October 6, the AAA reported Gas Demand Spikes Contributing to Rising Pump Prices

Since Monday, the national average for a gallon of regular gasoline has risen by seven cents to $3.86. According to new data from the Energy Information Administration, gas demand increased nationally from 8.83 million b/d to 9.47 million b/d last week, and total domestic gasoline stocks decreased significantly by 4.7 million bbl to 207.5 million bbl. High gasoline demand, amid tight supply, has led to higher pump prices nationwide.

Pump prices on the West Coast have increased due to ongoing refinery maintenance at roughly six refineries, severely limiting the region’s supply. However, refinery restarts and California officials allowing less expensive winter-blend gasoline to be sold a month ahead of schedule should offer drivers relief at the pump in the coming days. For the upper Midwest, pump prices have spiked as a deadly refinery fire in Toledo, OH has tightened supply in the region. According to some reports, the 160,000 barrel-per-day BP-Husky Toledo refinery may be offline until December due to an ongoing investigation into the blaze.

Since last Thursday, these 10 states have seen the largest increases in their averages: Alaska (+38 cents), Illinois (+25 cents), Ohio (+25 cents), California (+24 cents), Nevada (+22 cents), Oregon (+22 cents), Indiana (+21 cents), Washington (+19 cents), Arizona (+17 cents) and Michigan (+17 cents).

Natural Gas Futures

Look for negative CPI help from gasoline in October and possibly natural gas as well.

If the price of rent goes up in October, which I view as likely, we will see another big surge in the October CPI.

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NaetG

3 years ago

Although this week’s CPI report is for September, it very well may come in a bit higher than the August report. If my memory serves me correctly, the reporting period runs from the week containing the 13th of the week of the previous month through the same week of the reported month. With that said, the national average for all grades of gasoline fell much further during the August reporting period than they did during the September reporting period. Nat gas rose quite a bit during the August reporting period, but fell 5.6% during this month’s reporting period which should help somewhat. Be that as it may, prices were less kind for the reporting period for October’s report which has seen all retail level gas prices increase thus far with many states seeing much bigger retail level price increases than the national average.

oee

3 years ago

The CPI that will be published later this week will be for Sept prices. The October prices will be published next month.

david halte

3 years ago

Sept CPI is the last reading before elections, and the last measure of Q3, determining next year’s SS increase and other entitlements. Electric companies announced an Oct increase, that appears on Nov bills, the timing now makes sense. Gas pump and food prices increased since Aug. If Sept CPI measures less than Aug, it gives progressives a campaign point, and slight reduction in Q3 CPI. Just as July CPI came in lower than expected, with Jun CPI higher than expected, Sept inflation could be shifted to Oct by a manipulative BLS. If this occurs, Q3 will be the only months of the year inflation did not increase, ironically same as 2021.

prumbly

3 years ago

All of these problems are so easily fixed. All the West has to do is lift the sanctions on Russia and stop supporting Ukraine. It’s not like Ukraine is some shining beacon of Democracy – the current regime banned opposition political parties, held the leader of the main opposition party in jail and banned all media outlets that don’t support the regime. Plus they reneged on the 2014 Minsk Agreements and shelled Dombas for the last 8 years, killing thousands. There is a history here that Western media refuses to tell:

https://www.crisisgroup.org/content/conflict-ukraines-donbas-visual-explainer

Watt

3 years ago

Reply to prumbly

A Nato fan seriously told me Donbass should be destroyed and pro-Russians should be deported yesterday

PapaDave

3 years ago

Reply to prumbly

Is that all they have to do? It’s so easy! Just condone Putin’s slaughter of Ukrainians and its all sunshine and lollipops again! Good one comrade! Not to mention concede defeat just as Putin’s military is being destroyed.

Too bad you can’t wave your magic wand and make it happen comrade.

You must be a Russian troll, like JRM.

prumbly

3 years ago

Reply to PapaDave

Who’s condoning the slaughter of Ukrainians? Certainly not me. It’s a tragedy, and one we are largely responsible for.

PapaDave

3 years ago

Reply to prumbly

You are responsible? Well stop shooting them. Go back home comrade.

prumbly

3 years ago

Reply to PapaDave

Sorry, but I don’t subscribe to “My country right or wrong”. When your country is wrong, it is everyone’s duty to stand up and say so, otherwise your country will end up in a very dark place. We are going massively wrong in our current foreign policy. It is policy based on ignorance, incompetence and arrogance. There is no possible up-side for anyone. We’re certainly not helping the Ukrainians – we’re just ensuring that more and more of them are going to die and that their country gets completely trashed.

PapaDave

3 years ago

Reply to prumbly

Its not just the US, right or wrong. The vast majority of the world is aligned against Putin, the butcher. Who actually supports him? North Korea, China, Saudi, India. And you. And it isn’t even support. It is mostly just a lack of criticism. Except for you.

Your comments continue to reinforce the point that you are simply a Russian troll, or a truly dumb American who has been successfully indoctrinated by Russian misinformation.

You are trying very hard to turn a blind eye to the atrocities going on and to find a way to blame someone other than the country that is committing those atrocities.

Sorry comrade. I aint buying it. And your mother Russia has become an international pariah. Your fellow Russian’s are scrambling to escape a sinking ship. You should get out before Putin shuts the borders and its too late to escape.

prumbly

3 years ago

Reply to PapaDave

Nah. Most countries are not sanctioning Russia. None in central and South America. None in Africa, None in Eurasia. Not India. Not China. None in the Middle East (except Israel). The huge majority of the world, by population, isn’t sanctioning Russia. They see this, correctly, as yet another US war with Ukraine as the “useful idiot” doing the actual fighting and dying.

PapaDave

3 years ago

Reply to prumbly

Sure. Whatever you say comrade.

FromBrussels2

3 years ago

Yeah, sure, but you WILL respect your energy delivery ‘promises’ to your EU ‘frends’ , won t you , after fckn up our cheap russian energy infrastructure, won t you ?! ….I mean we ARE frends after all , aren t we ?

Salmo Trutta

3 years ago

The Eurodollar Is What’s Happening—Not Quantitative Tightening or Rate Hikes (theepochtimes.com)

Salmo Trutta

3 years ago

The FED must hold the money stock in check. That means no growth in the #’s whatsoever.

MPO45

3 years ago

Lots of confusion about oil going up or going down before midterm…blah…blah…blah…Biden…blah..blah…

Seems like the way to play this is to have long positions in oil companies as well as simultaneously short positions in oil companies. Why leave money on the table? Don’t fight it just sit back and let the profits happen.

Exciting week coming up, CPI report then 4,8,13, and 26 week T-bill auctions coming right up.

Salmo Trutta

3 years ago

Nikolai Lenin once pontificated “The best way to destroy the capitalist system is to debase the currency.”

Watt

3 years ago

Reply to Salmo Trutta

https://www.aeaweb.org/articles?id=10.1257/jep.23.2.213

It is from Keynes, although he said it was from Lenin

8dots

3 years ago

RB weekly : after seven weeks of wild trading between Oct 25 hi/lo, BB is up to Feb 14 2022 hi/lo trading range — a huge bar, on slightly higher volume. Something is wrong !

8dots

3 years ago

Gasoline futures daily hit the cloud. Gasoline trading range is Mar high/low 2022. RB weekly : after crossing the weekly cloud, there must be a close > June 6 2022 high. BB might be in a trading range under Nov/Feb flatbed, before moving up in Mar 2023…Huge bar small vol

Avery

3 years ago

Good Schiff interview regarding inflation and The Fed on USAWD last night.

Everyone be sure to blame the butcher, the baker and the candlestick maker for the high prices!

MarkraD

3 years ago

Reply to Avery

Every Schiff interview for the last 15 years is identical.

Zardoz

3 years ago

Hang on… my sources tell me that gas prices will be held low to sway the midterms. Are my sources chuckleheads?

BernankeAirdrop

3 years ago

Reply to Zardoz

They were supposed to, that’s why Saudi Arabia is now part of the Axis of Evil per the Biden regime.

Are you a ShareBlue shill or a retired, boomer stuck in 1960? You always post nonsensical propaganda, I hope you are paid for your work.

MarkraD

3 years ago

Reply to BernankeAirdrop

Right, what’s the problem with a beheaded journalist on occasion between friends.

Ethrane

3 years ago

Reply to MarkraD

Depends on the journalist

PapaDave

3 years ago

Reply to BernankeAirdrop

Lol! Wait till you read some of the political shills I have on my IGNORE list. Thank goodness I don’t have to read any more of their political garbage. If you don’t want to read someone’s nonsense, just click on their name and click the IGNORE button. Problem solved.

FromBrussels2

3 years ago

Reply to BernankeAirdrop

Zardoz, Papadave and recently MarkrafcknD are ONE person !!

Zardoz

3 years ago

Reply to FromBrussels2

We are also the potato vendor you patronize, comrade, and you do NOT want to know the special potato process

Zardoz

3 years ago

Reply to BernankeAirdrop

So that puts you clearly on team Saudi. Another traitor screeching about his patriotism…. Tell Hanoi Jane I said hi at the next meeting.

PapaDave

3 years ago

The price pressure on oil, natural gas, gasoline, diesel, fuel oil, propane etc is UP for the rest of this decade. Though in the short term there is always price volatility. As we have seen in the last few months.

A lot of extra supply came onto the market over the last year which has helped to lower prices temporarily.

For example, in the last 18 months, OPEC brought back as much as possible of the 10 Mbpd of oil production that they cut in 2020. Though it turned out to be just 6.5 Mbpd, as participants were not spending the capex needed to allow production to fully resume. Some of that production is now gone.

In addition the US and others released more than 1 Mbpd from their various SPRs in the last 12 months.

And US companies increased production from the May 2020 low of 9.7 Mbpd to the current 11.8 Mbpd.

But those additions are over now.

The US is scheduled to end SPR releases soon, though they did extend releases into November by another 10 Mb in total. (Or 0.3 Mbpd for the month).

And OPEC, upset with the recent decline in prices, has decided to cut 2 Mbpd beginning in November. Though, some of that cut is imaginary since many members are already far short of their quotas. (For example: Russia’s quota was cut from 11 to 10.5 Mbpd. But since their current production is only 10 Mbpd, and falling due to sanctions, it isn’t really a cut.) Still OPEC production will fall by about 0.8 Mbpd in November.

US producers could increase by another 0.2 Mbpd but show no desire to do that until prices firm up a bit.

And EU sanctions on Russian oil begin in early December. Which will accelerate Russian production declines.

One important thing to realize, is that even with ALL these additions to supply over the last two years, world inventories have continued to decline over this time period. Once we switch from supply additions to supply subtractions in November/December, inventories will begin dropping even faster.

Another important thing to consider is that there is a physical market for oil (which I just described), and a financial market. The financial market is 30x to 50x the size of the physical market and tends to over react to news and make prices swing to extremes.

When Russia first invaded Ukraine, and sanctions were imposed on Russia, the financial market “expected” a big drop in Russian oil production and pushed prices up to $120 WTI.

But Russian production was slow to decline, and SPR and OPEC releases made up for it for the last 9 months. Financial markets had over reacted.

In addition, when the Fed began raising rates, financial markets started to expect a recession and to expect a big drop in oil demand. As a result, they drove oil prices down from $120 to $80 WTI recently.

As usual, financial markets over reacted to the downside, because demand is still going up.

Now financial markets are reacting to OPEC cuts, and starting to push prices back up again.

What’s an investor to do, given all this volatility?

Look at the physical market, which can be seen through US and world inventories. As long as inventories keep dropping, there remains upward pressure on prices. Even though the financial markets will tend to over exaggerate the short term moves.

Which means oil should likely be “around” $100 by year end and gasoline between $4 and $5.

And if inventories continue to drop next year, we could easily get a supply crunch, and a sudden spike in prices.

And there will be no massive SPR releases or OPEC reserves to bail us out then.

worleyeoe

3 years ago

Reply to PapaDave

Big write up, PapaD! Stay bullish on fossil fuels!

I suspect Putin has a few more surprises up his sleeve. $100 by early Nov is very possible, IMO. Like everyone, I just wonder what peak we’ll see for NG futures this winter.

Here in GA, my cost @ Costco is back up to $3, and we’ve still got the $0.29 state tax exemption going. I’m sure this will go away sometime on Nov, so we may be above $3.50 by TG.

Captain Ahab

3 years ago

Reply to PapaDave

Kudos for, ‘What’s an investor to do, given all this volatility?’

IMHO, like most things economic, there are too many factors for any level of certainty. However, there are signs of recession, and perhaps worse, looming. With a severe winter, there will likely be equally severe impacts on economic activity in Europe. Continuing Fed activity might well produce an economic winter in the USA… I could go on, but if ever there was a time for caution, it is now.

MarkraD

3 years ago

Reply to PapaDave

While this post is very in depth, just one variable could completely alter it, like Venezuala, or Putin being ousted.

A ten year horizon also can’t factor technology or renewables, the sector is improving at a feverish rate, I view it with a “Moore’s law” lens, TSLA has shown us a few things, I remember the naysayers back 12 years ago.

PapaDave

3 years ago

Reply to MarkraD

“While this post is very in depth, just one variable could completely alter it, like Venezuala, or Putin being ousted.”

Correct. But not those variables.

1. Putin being ousted: changes nothing, for now. The west will maintain sanctions unless they can get Russia to commit to withdraw from Ukraine, pay for reparations, demilitarize, and get rid of nukes. And what are the odds of that? Zero? Till then, they want to prevent Russia from acquiring the funds needed to rebuild its shattered military. As a result Russian oil and gas production is set to keep declining.

2. Venezuela: same situation. Unless Maduro crumbles to US demands, which he won’t, I only expect very modest recovery in Venezuelan production, if any at all.

And in both cases, once production is crushed, it takes a very long time to bring it back online. Same thing in Iran. There are no “white knights” riding to the rescue here.

“A ten year horizon also can’t factor technology or renewables, the sector is improving at a feverish rate, I view it with a “Moore’s law” lens, TSLA has shown us a few things, I remember the naysayers back 12 years ago.”

I admire your optimism. It will be proven correct eventually. But I’m guessing 20 years. Or 30. Which is why I am only nibbling at small positions in renewables and hydrogen right now.

The world is currently in an energy transition. We have been building out renewables for over 2 decades now, in the hope of replacing the use of fossil fuels. And in that entire time frame fossil fuels continue to supply 80% of all the energy used on the planet. Because the increase in overall energy demand means we have needed more renewables AND more fossil fuels. In the year 2000 the world used 76 Mbpd of oil. In 2022 it will be 100 Mbpd. That’s a big increase in oil use at the same time that we were building all those renewables.

Net result: We are going to need even MORE fossil fuels for the rest of this decade. Yet the supply is very limited now, for all the reasons I have been mentioning here in post after post for many months now.

The only way to reduce that demand and to balance it with supply is through higher prices.

Of course, something like a deep global recession or nuclear war could change this scenario. But not any of the things you have mentioned.

quantzic

3 years ago

Reply to PapaDave

Nice analysis.

You should take a look at disruptive drilling tech. It will lower costs worldwide. Pilot plants are scheduled for 2024. The DoE validated Quaise, for example.

After the needless resource wars, I expect energy should be around $0.02/kWh, plus transmission cost..

PapaDave

3 years ago

Reply to quantzic

Thanks. Looked it up. Something to keep an eye on. Could be a game changer in 10 years time. Though there are always a lot of promising ideas that never make it to practicality or profitability.

JRM

3 years ago

Reply to PapaDave

Joe is talking to Venezuala and Iran for oil deals!!!!

He seems not to know they are members of OPEC!!!

PapaDave

3 years ago

Reply to JRM

He can try. But they are unlikely to cave to his conditions. And even if Joe got everything he wanted, the amount of extra oil production from these two countries could easily be offset by another cut in OPEC quotas (or further declines in Russian production). OPEC seems to want prices in the $90 to $100 range to maximize returns and since they control 40% of world production, they get to influence the price.

Joe could also provide incentives for US producers to get a bit more oil. But OPEC could easily offset that as well.

Long term, we are stuck with $90+ oil until we can develop enough renewables to replace that oil. And that will take decades.

Its not all bad news though. US companies produce 12% of the world’s oil. At $90+ they are gushing cash flow. Its the same with Canadian oil and gas companies. As individual investors, we can participate in the profits by owning shares in these companies.

I understand that you don’t like Biden and want to blame him for everything. But it doesn’t matter who is in the white house for the next decade or two. This is the scenario that is going to play out. Rather than complain about it, take advantage of it. Its less stressful and more rewarding.

FromBrussels2

3 years ago

Reply to MarkraD

sure Zardoz !

8dots

3 years ago

Reply to PapaDave

Yes !

FromBrussels2

3 years ago

Reply to PapaDave

Great fckn analysis Zardoz !

Zardoz

3 years ago

Reply to FromBrussels2

You really should report me to the authorities… oh wait, I’m the authorities too! Who am I NOT?

Salmo Trutta

3 years ago

Inflation Nowcasting: Latest Data (clevelandfed.org)

Six000mileyear

3 years ago

The decline from this year’s top in gasoline looks line a motive Elliott wave. This recent bounce off September lows should prove to be corrective. There are too many possible E-wave patterns to forecast the duration of this consolidation. More price data will eliminate some patterns. Once the consolidation is over, I expect another huge move lower.

PapaDave

3 years ago

Reply to Six000mileyear

Can your Elliott waves tell us if we are going to have a mild winter?

Can they predict what OPEC will do next?

And most importantly; can they drill for oil?

Zardoz

3 years ago

Reply to PapaDave

I think you need to consult puxatawny Phil for those answers.

Call_Me

3 years ago

Reply to Zardoz

That rodent needs a new gig – the faux weather thing is passe.

Call_Me_Al

Captain Ahab

3 years ago

Reply to PapaDave

I dunno. The Farmers Almanac claims 80-85% accuracy for weather predictions, not exactly perfect foresight, but better than flipping a coin.

Call_Me

3 years ago

Reply to Captain Ahab

Vague predictions about large regions of the U.S. that are “verified” by some undisclosed metric. They can claim whatever they’d like, good to slide neatly between a coin flip and perfection – the public will buy that.

Call_Me_Al

Esclaro

3 years ago

Reply to PapaDave

I used to work for a large oil company and so did my father. One of my kids works for Exxon. I never met anyone who is as bullish on petroleum as you are. Good luck with that!

PapaDave

3 years ago

Reply to Esclaro

I am a one trick pony.

Expect a CPI Energy Surge in October Due to Rising Gasoline Prices

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