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February 18, 2009

Steven Chu Steps Up To The Plate (or grid)

 

New Energy Sec., Steven Chu, is wasting no time in putting that economic recovery money to work to build and improve power lines and help low-income families cut energy use.

“We’re really looking at months” for some of the money to begin flowing, said Chu as he briefly answered reporters’ questions after an appearance before a meeting of state utility regulators. He promised approval of some loan guarantees and other action by April.

The Energy Dept. will manage $39 billion in loans, tax breaks and loan guarantees. Much of it will boost renewable energy and conservation programs.

Wind is his friend, and Chu will use it to make wind-produced electricity a larger share of the nation’s power supply.

As for the OPEC oil problem, Chu just states that it is not his domain.

Filed under:Alternative Energy,Energy,Fuel Price Trends,Gas price,Presidential Election | by Pump Girl @ 7:50 pm | 

February 17, 2009

How Come Those Gas Prices Are Rising?

 

After all, the price of crude oil is at a new low, so why aren’t gas prices going down?

The price of gas is tied to oil, but it’s a matter of which oil. The benchmark for crude is West Texas Intermediate, drilled right there in West Texas, and historically more expensive than inferior grades from elsewhere.

This is the tricky part. Right now West Texas crude is selling for a lot less than inferior grades from other places in the world. The reason is that the US storage facilities are overflowing with the stuff (severe economic downturn and all) sending prices to 5-yr lows. Should be good news, but the stuff that goes into most of the gas made in the US comes from overseas where it just plain costs more.

We’re going definitely over $2, and I bet we’ll hit $2.50 before spring,” said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. “This is going to be an unusual year.”

All that oil in our own back yard, but we just can’t get it from here to the refineries. No matter what the explanation, drivers don’t like it. Many think it is some sort of conspiracy. “Grassy knoll” anybody?

Filed under:Fuel cost,Fuel Price Trends,Gas price | by Pump Girl @ 1:09 pm | 

February 13, 2009

No wonder so many are confused…..

 

Reuters, the highly respected business source, reports U.S. oil jumps 10 percent on stimulus hopes. We’ll make some allowances because it is a Friday before a long weekend, but still…….this is crazy!

Anyone paying attention knew that the House would pass the stimulus package. The projected Senate vote has also been known for several days. Various cyclical stocks did not respond in the same way as oil futures.

So what gives? In fact, the front month oil contract is influenced by several specific factors that do not reflect the underlying energy demand — amounts in storage, how much is available in Cushing OK near the delivery date, trading by commodity ETF’s, and similar factors.

This is an example of how even very intelligent observers, reading highly-regarded sources, can reach the wrong conclusions.

Filed under:Fuel Price Trends | by OldProf @ 9:52 pm | 

February 12, 2009

Another Road to Higher Gas Prices

 

Tom Waterman of Oil Intel, one of our featured links, sent us a copy of his Feb. 5 story, “Will Refiner’s Struggles Lead to Higher Gasoline Prices?” Ordinarily subscription is required, so we will post in its entirety.

New York, NY After 4th quarter earnings reports confirmed how bad the downturn in the U.S. and European refining sectors has been there is a concerted effort underway to cut costs at every corner.

The real danger looking beyond 2009 is that expansion and upgrading projects are being delayed and in some cases indefinitely postponed.

Already there are questions being asked on Capitol Hill about why retail gasoline prices are rising even as crude oil has fallen so sharply in recent months.

The answer is very simple. Refiners that had been producing gasoline at a loss in the latter part of 2008 have been cutting back on overall utilization as well as deemphasizing gasoline production in favor of more profitable distillates.

Refinery utilization rates in January averaged below 84% for the first time in a very long time. In fact the American Petroleum Institute says that overall in 2008, refinery utilization averaged 84.9%, the lowest rate since 1988. The API also calculates that gasoline demand fell in 2008 compared to the prior year by an unheard of 3.3%. It may be even higher once the Energy Information announces official data sometime in April, 2009, and it marks the first year-over-year decline in gasoline demand since 1991.

With the ethanol mandate requiring 11.1 billion gallons of ethanol blended into gasoline in 2009, one might think that gasoline demand could slip further this year.

That is a possibility but further ‘demand destruction’ will be dictated by how deep the economic recession cuts.

Frankly, efforts underway to lessen the impact of reduced demand for products will alter the supply/demand equation during 2009. Valero, the nation’s largest refiner has already cut back to
about 75% of capacity, and there is no reason to believe that the company will change that pattern unless profit margins improve. Others are certain to follow, which could keep utilization rates at historically low levels.

Naturally there will be some refiners that try to take advantage of improving margins, which are substantially higher this month than at any time since September, 2008, but have a
long way to go to convince refiners to boost overall output.

There will have to be signs that gasoline demand is picking up. Perhaps the first sign came yesterday when the EIA reported that ‘implied demand’ ticked higher by 4.2%, or 365 million bpd.

That number was startling, given the economic mess we’re in right now, but until we see a few weeks of data like this, it’s too early to declare that demand is coming back.

This is not good news for Houston and the greater Gulf Coast region. In Texas alone there are 25 refineries employing thousands of workers, representing more than 25% of U.S. refining capacity.

I feel it’s too early to bury the industry as these cycles can be corrected in one of two ways. Either demand starts to improve again or production is scaled back until they do.

It seems this sector is intent on making certain that margins improve so that it remains at least profitable to operate.

This is a trend we saw as far back as October, and we have no reason to believe it won’t continue. We felt that gasoline would lead the next rally,
and that has been the case.

On November 17, 2008, we wrote: ‘Even as gasoline gets battered again and again, it gets clearer every day that gasoline is going to lead the market higher at some point,
and that could very well be after January 1 when the winter begins to wind down and suddenly depleted gasoline stocks become a concern. When we replace the calendar
at the New Year, spring does not look so far away.’

Suddenly spring does not look far away and we are in the midst of what some refiners tell us is the largest maintenance period we have seen in years.

We just don’t see gasoline production increasing at a rate that we normally see.

We also wrote: ‘However, the near-term issue is that gasoline prices will rise versus crude oil. The chances that gasoline production worldwide will slow are greater than OPEC’s
ability to shave crude production, therefore it makes sense that there will be more than enough feedstock but as refiners cut back on gasoline production,
tightness could develop in the U.S. and elsewhere.’

On November 17, 2008, NYMEX prompt WTI settled at $54.95 per barrel while RBOB gasoline settled at $1.1746 per gallon, or the equivalent of $49.33 per barrel, 10.2% under the value of crude oil.

Yesterday, WTI settled at $40.32 per barrel compared to RBOB, which settled at $1.2184 per gallon, or the equivalent of $51.17 per barrel, 26.9% above crude oil.

Since then, crude oil has fallen by 26.6% while gasoline has gained 3.7%. We see this trend continuing as spring approaches.

Tom Waterman
Publisher
www.oilintel.com

Filed under:Causes and Solutions,Fuel cost,Fuel Cost Control,Fuel Price Trends,Gas price | by Pump Girl @ 4:19 pm | 

February 10, 2009

Oil Price Guru Predicts $80/Barrel By Year End

 

That would be long-time oil and gas forecaster Henry Groppe, Groppe, Long & Littell founder. Groppe concludes from his analysis that between now and the end of the year, the price of oil will double.

This is not some know-just-a-little talking head from some finance TV show. 83-year old Groppe has been in the forecasting biz for 55 years, and uses fundamentals.

“Given enough time, it’s the fundamentals of supply and demand balances that control the price,” Groppe said. “It’s just like journalism: ‘Get your facts straight,’ ” he said, when referring to moves inside the 80-million-barrel-a-day global oil business.

The guts of his 2009 forecast:

  • the 2 million barrel/day cut in OPEC production
  • the 4 million barrel/day increase in demand due to the 50% decline in crude prices
  • the 1.2 million barrel drop in consumption due to global recession
  • Add ‘em all up, and you get a 4.8 million barrel/day net oil shortage.

    Prices must go up to get everything back in balance.

    Groppe is not impressed by most analysis done by the government, agencies and/or companies because:

    “The big problem is the terrible quality of the data. Do it long enough over the years, you get some feel for what the actual [supply and demand] balances are.” But you have to try and pin down what’s actually happening versus the misperception of what’s happening,” he said.

    That is so true in many areas – the great divide between actual and misperceived.

    Filed under:Fuel cost,Fuel Price Trends,Gas price | by Pump Girl @ 6:43 pm |