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Friday, July 5, 2013
The EIA reported that gasoline supply increased 3.65 million barrels in the latest week while crude supply increased by 1.57 million barrels and crude by 18,000 barrels. That helped the RBOB wholesale gasoline futures hit a six-month low. Now normally that would be cause for celebration, yet once again gasoline buyers in the Midwest never seem to get a break. Just as hopes were being raised that indeed we could see gas prices start to fall, a storm packed with massive amounts of rain and spectacular lightening cut the power to the CITGO refinery in Lemont, Illinois, the latest in bad news for Midwest drivers.
While Chicago is thrilled with being the World Champions of hockey, it is tired of being number one in gasoline prices. James Tae of MSN Autos on the MSN news site gives us a spin around the globe to help at least some feel better about their gasoline prices or perhaps worse. He writes that "With the onset of the summer driving season, the average price of a gallon of gas in America went up 10.4 cents in May — the first increase since February. With the average gallon approaching the $4 mark, drivers coast to coast will feel the pinch over the next few months. It's easy to focus on where gas might be cheaper, but the grass isn't always greener on the other side. Here's a look at gas prices around the world and across the United States, from least to most expensive, in early June 2013.” These are a few examples, the full list can be found at MSN Autos.
Venezuela: 10 cents a gallon. That gas price above is not a typo. Thanks to government subsidies put in place by the late President Hugo Chavez, gas prices have been frozen for nearly 15 years. The policy made Chavez extremely popular in Venezuela, but could collapse the country's economy in the wake of his death. The harsh realities of inflation will at last come to affect Venezuelan gas prices, and though the country is a major oil exporter, the high spending rate of the Chavez regime left it strapped for cash. The price for a gallon of gas in Venezuela is a textbook.
South Carolina: $3.19 a gallon - South Carolina currently has the lowest average gas price of all 50 United States. The combination of nearby refineries in Alabama that provide a steady supply of oil with South Carolina's low gasoline taxes keeps the price down, but South Carolinians hard hit by the economy are spending a greater percentage of their income on gas than residents of any state other than Mississippi.
Chicago: $4.44 a gallon - The Second City currently holds the title for the highest gas prices in the United States. Beyond the higher cost of everything in a major urban area, Environmental Protection Agency regulations require special summer gasoline formulas for much of the Midwest, driving prices even higher. Chicago's gas prices are 38 cents higher than this time in 2012, and there's no relief in sight. In fact, they might go higher still.
China: $4.74 a gallon - China is already the second-biggest oil consumer in the world behind the United States, and with an emerging middle class it should only use more in the coming years. Middle class doesn't translate to wealthy, however. In spite of government subsidies to keep gas and diesel relatively low, Chinese citizens still suffer at the pump in proportion to the rest of the world.
United Kingdom: $8.06 per gallon - For Americans, the United Kingdom has always been the go-to example for how things could always be worse when it comes to the cost of gas. This is the case now more than ever. Rising crude oil prices and higher fuel taxes have contributed to a surge in gas prices in the U.K. over the past decade. Prices aren't as high as in other European countries, but the increase over time is hurting citizens in the U.K. as much as any other.
Turkey: $9.89 per gallon - Wherever you fill up, as long as you're not in Turkey, it could always be worse. Even before the onset of recent turmoil in the country, Turkey's fuel prices were punitive. The reason? A good chunk of the population pays no taxes at all, so increasing the fuel tax has become a way for the Turkish government to make up its budget deficit gap.
To make matters worse Bloomberg News reports that "Refiners may be forced to exceed 10% ethanol in their fuels next year in order to meet congressionally mandated renewable-fuel standards, according the Environmental Protection Agency. While oil-industry lobbyists are urging lawmakers to scrap the Renewable Fuel Standard because of problems this year, an EPA official will tell Congress today that issues with the "blend wall" -- where the amount of mandated corn-based fuel exceeds levels considered safe for all engines -- won't bite until 2014.
"Given these facts, we will continue to look at the potential impacts of the blend wall over the near and longer term," Christopher Grundler, director of the office of transportation and air quality at the EPA said in testimony prepared for delivery today to a panel of the House Energy and Commerce committee. "EPA will continue to engage with stakeholders on this issue as we move to propose the RFS volume requirements for 2014." The Renewable Fuel Standard, or RFS, dates in its current form to 2007, when concerns about dependence on overseas oil and a desire to curb the use of fossil fuels induced Congress to set quotas for the use of alternatives to gasoline or diesel, such as corn-based ethanol and biodiesel.
Under the law, refiners such as Exxon Mobil Corp. must blend a certain volume of renewable fuels into their gasoline each year regardless of the total amount of fuel produced. When fuel use falls, it effectively boosts the amount of ethanol in the gasoline and other fuels. The EPA and renewable-fuel producers say the mandate spurs production of American-made fuels, helps corn farmers and cuts carbon emissions by replacing gasoline. Lobbyists representing refiners such as Exxon, based in Irving, Texas, say falling U.S. fuel demand means that requirements for ethanol may force its use higher than the 10% that the government says is safe for all engines.
In his testimony today, Grundler said that higher blends of ethanol may need to be used to meet the requirements, or "significant additional volumes of non-ethanol biofuels would be needed." While EPA acknowledged the issues of refiners, a Department of Agriculture official shot down concerns from chain restaurants, food charities and chicken producers that the fuel standard is raising the cost of food. "Any increase in farm prices for corn and soybeans due to increased biofuels production has likely had only a small effect on U.S. retail food prices," Joseph Glauber, chief economist of USDA, said in his testimony to the panel."
Oil was kind of neutral to bearish in the EIA report but the movement in gasoline and the stock-market also influenced moves. Bond yields backed off as a weak GDP eased the fears that the Federal Reserve would take away the taper punch too soon. We are also seeing oil try to get a feel out of Europe where S&P gave a less than enthusiastic assessment of the European economy. It was a zombie like forecast where they do not see a recession but at the same time there are not looking for a lot of growth either. Dow Jones reports that "Asia's crude oil market is picking up as peak summer demand sets in and refining capacity comes back online, but fundamentals are weak with Japanese demand slowing".
Japanese refiner Showa Shell Sekiyu says 3Q crude throughput will be 2% lower than last year at 462,860 bbl/day. While Asian imports of Iranian crude has fallen this year, China was the only of the big consumers to increase imports from Iran. JBC Energy estimates China's 2Q imports stood at 480,000 bbl/day and predicts an increase to 500,000 bbl/day in 3Q. Dubai raises its official selling price for September crude by 10 cents to +$0.05/bbl to the Oman OSP. DME Oman for August delivery settles 53 cents higher at $99.35/bbl. We still from a position standpoint like the short side of oil but there have been some great day trading opportunities as well. Nat gas expiration of the July contract was above the all-important 370 area. Probably a great day to price out some long dated calls!