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July 18, 2013

CNN Projects Further Rise in Prices

 

Unfortunately for consumers and fleet managers, the variety of forces combining to drive up prices at the pump show no sign of slowing. A number of media outlets project that the price hike will continue through the end of the summer driving system – at least. An article in CNN explains why analysts see this as the most likely short term move:

Here’s a breakdown of what’s driving the recent gas spike, and what drivers should be worried about later this summer:

Political turmoil

The toppling of the government in Egypt and some other political upheaval in North Africa hasn’t significantly cut into U.S. oil supplies yet. But it’s made oil traders wary, which itself has been enough to raise the price of oil. Oil futures are up $4.72 a barrel, or 5%, to nearly $106, since the protests that toppled Egyptian President Mohammed Morsi started in late June.

“I think that’s the biggest factor,” said Kloza.

Upheaval in the commodity markets

Since investors started worrying about the Federal Reserve cutting back on stimulus, the prices of safe-haven commodities such as gold have plunged. Much of the money that came out of gold seems to be flowing into oil futures, driving up those prices, Kloza said.

“Commodity investors have the largest bullish position (in oil) we’ve ever seen,” he said. “It’s quite bubbly at the moment.”

Americans hitting the roads

Americans are hitting the highway this summer, meaning gasoline consumption is way up. That has taken crude oil inventories down by 24 million barrels since the end of May, which is 24% more than supplies of oil fell in the same period last summer. And a tighter oil supply equals higher prices.

“There’s been a real driving surge, whether because of pent-up demand or what, I’m not sure,” said Kloza.

Troubles ahead: Refinery problems and storms

Right now, North American refineries are operating at close to peak capacity, as refinery operators try to do every summer. But getting through a summer without problems can be the exception, not the rule.

Kloza said there is buzz in the industry that the Irving Oil refinery in St. John, New Brunswick, Canada, might need to shutdown for some unscheduled maintenance. That could send gas prices sharply higher in the Northeast U.S., since the refinery is one of the ten largest in North America. Irving Oil did not return a call requesting a comment on those reports.

In sum, this more or less captures the pressures driving up the fuel market at the expense of the average consumer. As the market climbs this wall of worry, the best we can hope for is that prices revert to the mean based on their season cycles.

Filed under:Fuel Price Trends | by Eyes on Energy @ 6:49 pm | 

July 17, 2013

US Consumers Continue to Struggle With Mounting Prices

 

Despite significant progress in improving domestic supply, American consumers are still suffering with gas prices at the pump. In large part, this reflects ongoing market uncertainty surrounding geopolitical developments – particularly in the Middle East. The Boston Globe asserts:

Even though oil imports are approaching 20-year lows, and the United States is enjoying a boom in new fuel sources, gasoline prices are soaring again because of political troubles halfway around the world. The civil unrest and military coup in Egypt — a relatively small exporter of crude oil — and the ongoing in-fighting in Syria have energy markets worried that the unrest could spread to other oil-producing countries in the region, disrupting supplies…

…And though the flow of imported oil has been steadily falling, the United States remains a huge consumer of foreign fuel and will continue to be subject to global events, said Jason Schenker, president of Prestige Economics LLC in Austin, Texas.

“It’s still a global market,” said Schenker, whose financial consulting firm monitors the global oil industry. “We’re subject to global demand because we’re still importing millions of gallons per day from overseas.”

An article by ABC News corroborates this interpretation.

…unrest in the Middle East that is creating instability in the global oil markets. “Anytime Egypt gets in trouble, knee jerk reaction is go out and buy some crude oil. And the price of crude has shot up, finally kicking in at the pump,” said Jeff Macke from Yahoo Finance.

However, a CNBC article points to a different, but equally significant factor in gas prices: hurricane season.

“The 500-pound gorilla that’s ready to walk in the door is the upcoming peak of hurricane season” in August, DeHaan said. After Hurricane Katrina damaged refineries in the Gulf of Mexico in 2005, spiking prices and stretching supply, major storms moving in that direction generate concerns. And that can edge crude prices up.

All in all, a number of factors have combined to shoot up prices at the pump. Consumers and fleet managers most sensitive to these drastic moves would be wise to lock in prices in the late fall as they reach their typical lowest point.

Filed under:Fuel Price Trends | by Eyes on Energy @ 5:09 pm | 

July 16, 2013

CNBC Covers Nationwide Price Spike

 

CNBC had a segment last night noting that gas prices this year are a notable 20 cents higher per gallon than they were last summer.  The full video is available below, followed by a notable excerpt.

The following exchange between the host, Patrick Deehan, and Stephen Shork stands out from the rest of the segment.

Host: So here is the question, Patrick. It used to be that four bucks a gallon was the break even point. How do we know that’s not the case? Americans are very adept at dealing with new things. Is there a breaking point for the average American family? Five bucks? X bucks?

Patrick Deehan of Gasbuddy:  There certainly is. Five bucks is the next psychological breaking point. We’ve seen it in some rural stations or perhaps in California and isolated basis, but about not even in Chicago have we seen regular gas over $5 a gallon. So that is the next breaking point. How close are we? That’s a discussion for another day. But for now I think that is the next point where you see demand start to crumble.

The segment goes on in an attempt to put current gas woes in context. How big of a dent has the recent spike put in the average American budget? Why are some areas of the country affected more than others.

Host: There are parts of America, Hawaii, you can understand why prices are so high. They have to get the fuel there. But then there are certain areas like Charleston, South Carolina which is the lowest price but there is not a lot of fuel terminals necessarily near there. Is there any rhyme or reason to gas pricing in your mind?

Stephen Schork of The Schork Report: Well, you do have a state by state basis the taxing information where of course taxes in South Carolina will be much lower relative to Illinois. Illinois has the double whammy of a higher tax policy and a significant amount of refinery downturns this spring and into summer. We have a ton of oil, we just don’t have the capacity to turn it into gasoline. Minneapolis and Chicago, have seen massive spikes.

Gasoline right now at $3.61, you know, is cheaper today than it was in 1981, adjusted for inflation. So at that point, we also have personal consumption expenditures. A lot more of other money was going to gasoline in ’81 than it is today. So you put together that gasoline prices today especially at $3.61 is are not as dear as they were 30 years ago and less of our dollar goes towards energy, demand is strong because US consumers can afford these prices.

We felt this was one of the rare occasions in which CNBC offered some significant insight into current events regarding fuel prices. We hope you found it useful.

Filed under:Fuel Price Trends | by Eyes on Energy @ 6:21 pm | 

July 15, 2013

Price Shocks Ripple Throughout Country

 

Gas prices around the country have spiked in the last week, after settling down in the wake of the July 4th holiday. While the recent political unrest in Egypt seems unlikely to effect control of the Suez Canal, analysts claim international turmoil is in large part responsible for the price increase. Bloomberg reports that production difficulties in Libya are more directly relevant to US consumers:

Production dropped 16 percent to 1.13 million barrels a day last month, the lowest since January, according to data compiled by Bloomberg. The decline is partly because power shortages are disrupting the pumps that lift oil from beneath the ground, said Abdel Jalil Mayuf, a spokesman for state-run Arabian Gulf Oil Co., which pumps crude in eastern Libya.

“The country has been through a tumultuous time,” said Sana Abid, an oil analyst at KBC Energy Economics. “It looks bleak for Libya at the moment. They are going to struggle and that’s reflected in declining output.”

Austrian producer OMV AG (OMV) said today its fields in Libya, which produced 30,000 barrels a day last year, have been shut since June 25 because of the political situation.

The Libyan government is trying to address the problems facing oil producers, quadrupling the size of a special guard to protect the industry from attacks to 12,000 people this year.

Despite the fact that there is no easy end in sight, prices are expected to decline in the fall according to yearly trends. Nevertheless, this is yet another stark reminder that the potential for unforeseen international events to disrupt domestic markets is significant.

Filed under:Fuel cost,Price Shocks | by Eyes on Energy @ 4:26 pm | 

July 10, 2013

July 10, 2013

 

Macroeconomic Factors

The overall macroeconomic picture has not changed much from last month. While US GDP was revised downward for the first quarter, that is “old news.” Second quarter growth is continuing the same sluggish path of about 2%, with estimate revisions moving lower because of the trade figures. The bright spot in the U.S. continues to be housing, where there is continuing strength in sales and prices and a reduction in inventory. Employment gains continue at a moderate pace with more people entering the labor force.

The European economy has actually shown a small improvement in forward indicators. This has been offset by a slight weakening in estimates for China.

Surprising to many has been the strength in the U.S. dollar which is now at a three-year high on a trade-weighted basis (the best measure). This has served to keep dollar-denominated prices lower than would otherwise be the case.

Recession risks in the U.S. remain very low. The overall economic tilt, despite the scary headlines, remains for improving growth. Central bank policy around the world supports this viewpoint. We must remember that Europe, Japan, and China are all trailing the US on this front.

 

Potential Risks

So far – fingers crossed – we have not had major weather disruptions. While the market initially appeared stable in the run up to the July 4 holiday, oil prices have shot up rapidly following the civil and military unrest in the state of Egypt. During the same weekend of the American Independence Day, civilian protests reached a critical level that pushed the Egyptian military to overthrow the newly elected Islamist president Mohamed Morsi. The effect of these new developments has been similar to the initial Arab Spring uprisings in that they have caused a price shock due to increased uncertainty.

According to CNN Money:

“While oil production from Egypt is negligible, the country controls the Suez Canal and pipeline, which move about 4 million barrels of oil per day. Plus, the country is one of the largest and most powerful in the Middle East and North Africa — home to about a third of the world’s oil production. With Egypt on the verge of a meltdown, fears of supply disruptions will likely drive oil prices higher. ‘It’s anyone’s guess as to how high crude oil can go when crisis erupts in the Middle East,’ said analysts at Lido Isle Investors. ‘We believe this is a key breakout move and would not be surprised to see crude head higher from here.’”

Pricing

This month, the July curve remains basically unchanged from the June projection. Though we are no longer anticipating higher prices due to the summer driving season, international turmoil has compensated for those changed expectations. As such, opportunities remain to lock in more favorable prices beginning in the fall of 2013.

To download a more detailed version of this report CLICK HERE.

Filed under:Eyes on Energy | by Fuel Expert @ 3:20 pm |