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January 30, 2013

Bank of America Reports Pop in Oil Prices

 

A Bank of America commodities memo from January 29 reports a jump in oil and gas prices, led primarily by RBOB Crude Oil.

“The oil complex, led by RBOB, ripped higher yesterday on news that Hess would be closing its Port Reading, NJ refinery by the end of February. RBOB prompt cracks rallied $2/bbl and Cal13 structure gained 5 cents/gallon when the news hit the wire. The closure takes 50-60k bbls/day of gasoline production out of Padd 1 going into the summer, with Girard Point already going into turnaround for 45 days on Wednesday. Though not a game changer, this exacerbates the already short supply situation in Padd 1, a region that typically cannot resupply itself during the summer. With demand performing decently well and production clearly on the seasonal down slope, the Padd 1 gasoline outlook is very strong. Heating was initially dragged higher on the news but was sold quickly, with cracks closing at previous lows and spreads nearly unchanged.

WTI and Brent followed RBOB as well, gaining 90c and 50c, respectively. However, crude too was unable to hold the gains, coming off $1.20-$1.30 from the highs as producers took advantage of the spike to sell flat price. Crude eventually rallied back to unchanged over the remainder of the session, settling up 56c in WTI and 20c in Brent. WTI Dec13/Dec14 continues to rally, widening by another 20c, its highest since September 2012.”

In doing so, the Bank of America highlights something that we at Pumps have been saying for a long time. Underlying supply issues in gas and oil markets continue to expose themselves whenever the smallest of price shocks occur. Even during what ought to be a cyclical period of relative decline, prices continue to shoot up at unpredictable intervals. What is predictable, however, is the need for protection against these events.

Filed under:Causes and Solutions,Fuel Cost Control,Fuel Price Hedging,Gas price,Hedging | by Eyes on Energy @ 9:48 pm | 

January 23, 2013

Refinery Issues Mounting in Midwest US & California

 

A new report by the American Automobile Association suggests that refinery failures could result in higher gas prices in much of the United States, despite the cyclical pressures that tend to keep prices down in the winter. According to Automotive Fleet Magazine:

“A glitch at a Chevron refinery in El Segundo, Calif., caused a temporary shutdown, the effect of which could be magnified due to other refineries in California shutting down due to either unplanned repairs or seasonal maintenance, according to AAA. In addition, an electrical fire at ConocoPhilipps’ Wood River refinery in Roxana, Ill., shut down production.”

While current gas prices still remain lower than they were near the end of December 2012, these supply shocks illustrate the potential of short term fluctuations to overpower cyclical market forces. It is times like these in which hedging fuel could provide the type of protection so sorely needed by fleet managers and individuals alike.

Filed under:Fuel Price Hedging,Fuel Price Trends,Gas price,Price Shocks | by Eyes on Energy @ 8:32 pm | 

January 19, 2013

Dramatic Raid on Gas Plant Highlights Mideast Instability

 

Over the past couple weeks, the Saharan conflict between French and militant Islamist forces has grown increasingly heated. What began as French logistical support quickly became a series of airstrikes, followed by the deployment of special forces operatives. In an act of retaliation, the North African Al-Qaeda affiliate captured the fourth largest gas plant in Algeria – taking hundreds hostage. The Algerian military conducted a “final assault” on the compound earlier today, which appears to have resolved the current situation. However, the incident bodes poorly for the stability of oil prices in the near future. Reuters reports:

“The Islamists’ attack has tested Algeria’s relations with the outside world, exposed the vulnerability of multinational oil operations in the Sahara and pushed Islamist radicalism in northern Africa to centre stage…The apparent ease with which the fighters swooped in from the dunes to take control of an important energy facility, which produces some 10 percent of the natural gas on which Algeria depends for its export income, has raised questions over the value of outwardly tough Algerian security measures.”

While markets do not appear to have fluctuated significantly due to this issue, it remains that price shocks of this nature have the potential to disrupt international markets. And surely, a group sophisticated enough to hold hundreds of hostages captive for four whole days is not likely to disappear overnight.

Filed under:Fuel Price Trends | by Eyes on Energy @ 6:48 pm | 

January 11, 2013

Department of Energy Forecasts Drop in Oil Prices

 

In light of weaker demand and more-than-adequate gasoline supplies, the Department of Energy is forecasting that prices at the pump will fall in 2013. If these predictions come true, then the national yearly average will decrease for the first time in the years.

However, there are some important caveats to keep in mind with this type of forecasting. The Huffington Post reports:

“Forecasters caution that they can’t predict other factors like Middle East tensions, refinery problems or hurricanes along the U.S. Gulf Coast – in other words, the same events that caused gasoline prices to spike in 2011 and 2012. Any or all of those troubles could crop up again in 2013 and push pump prices above last year’s record average of $3.63 a gallon.

The government expected gas to average about $3 during 2011. Then came the Arab Spring, which included the shutdown of Libya’s oil production. Oil prices shot up, and gasoline averaged $3.53 for the year. The government’s forecast for last year also turned out to be too low, by 18 cents per gallon.”

Considering the ongoing turmoil in Syria and Iran, uncertainty about consumer confidence, and of course the ever-present potential for natural disasters – perhaps it’s best to take these forecasts with a grain of salt.

Filed under:Energy,Fuel Price Trends,Gas price,Price Shocks | by Eyes on Energy @ 5:18 pm | 

January 9, 2013

Gas Prices Rise as New Year Sinks In

 

Those who pay close attention to energy prices are familiar with the cyclical nature of oil and gas prices. Prices rise as demand increases in the spring and summer, then fall in the autumn and winter. This is to be expected.

What is somewhat surprising, however, is how energy prices are already increasing through the month of January.  The below chart illustrating the futures market for oil and gas hints at some unusual results:

This chart shows what the forward price curve for energy prices were as of the 15th of each respective month. Clearly, it shows a decline in forward prices throughout the fall. However, the most recent curve from this January suggests that forward prices have already bottomed. Generally this kind of pattern would not emerge until later in the spring. While this almost certainly will lead to higher prices for consumers, it is worth noting that the forward price curve remains significantly lower than it was in the April of 2010.

In fact, Americans are already feeling more pain at the pump than usual. According to the LA Times, analysts for the the popular gas-hunting smartphone application “Gasbuddy” have made the following predictions about energy prices in 2013:

  • “The value of the U.S. dollar over the course of the year: ‘When the dollar loses value, crude oil climbs higher and Americans pay more for gasoline.’
  • Uncertainty over the level of U.S. fuel exports in 2013: ‘As of January 2013, the Energy Information Administration reports that exports have risen 217% in the last 10 years, most recently rising to nearly three million barrels per day. The amount of products exported amounts to over 16% of what Americans consume everyday.’
  • The effects of hurricanes that may threaten fuel infrastructure along the Gulf Coast and the Eastern Seaboard: ‘Hurricane season has brought significant harm to oil infrastructure in the last decade, and while hurricanes are not guaranteed to impact such facilities, such an event could interrupt notable infrastructure.’
  • The dependability of the nation’s refineries after several problems in 2012: ‘We’ll also see whether refineries have sufficiently addressed the weaknesses that were exposed last year.’”

If these predictions are accurate, it could mean a significant increase in prices at the pump for the year. According to one Gasbuddy analyst, “‘The saying goes that all you can be sure of in life is death and taxes. I’d add the seasonal run-up in fuel prices every spring as something I’m sure of in life.’”

Filed under:Energy,Fuel Cost Control,Gas price,Price Shocks | by Eyes on Energy @ 4:30 pm |