Alltop, all the top stories

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.

Leave a Reply

Reload Image