Americans Face More Bad News at the Pump
By Walter Kurtz, Sober Look
As gasoline prices rise above $5/gallon in LA, analysts are puzzled. Gasoline prices have been on the rise for the past 31 days, which is highly unusual for this time of the year. Typically prices begin rising in March or April as the driving season kicks off.
The price increases are particularly puzzling, given the fact that US gasoline markets have been well supplied relative to historical levels (see figure 1).
Certainly the recent increases in crude oil prices have been a large part of the explanation. Some have suggested that increased demand due to stronger global economic activity is to blame. Other reasons have been proposed as well.
CNN: – What’s behind the higher prices at the pump? It’s a confluence of factors, from rising crude oil prices, to production cuts and refinery closings.
“Right now, things are tight worldwide,” said Ray Carbone, president of New York commodities trading firm Paramount Options. “Refineries going down, unanticipated maintenance, and higher demand … going into driving season.
Gasoline futures trading on NYMEX (CME) have been rising almost daily, pointing to even higher prices at the pump in the spring (see figure 2).
This is clearly going to create headwinds for consumer sentiment and ultimately spending patterns, particularly when combined with other issues consumers are facing this year.
CNN: – It’s hitting wallets right in the middle of winter, when people are already looking at large home heating bills. And it comes just after many Americans have been hit withsmaller paychecks, and are worried about looming budget cuts that could deliver an even deeper blow.
(Figure 1 – Source: EIA)
(Figure 2 - Source: CME)
14 Comments
In my neck of the woods, South Florida, prices have skyrocketed assuming you use an annualized rate
In any event, I freaked out when I saw that a gallon of premium 91 was now just under $4.30 a gallon – last week it was around 4.04 and not that long ago in the $3.70′s.
Eerily reminiscent of summer 2008 when all the experts thought we had missed the recession. Energy shock and higher taxes, you have to wonder what that will do to our momentum going forward.
I’m quite confident that many will soon come along to proclaim there’s no relationship WHATSOEVER between the Federal Reserve’s printing of copious amounts of fiat and correlating purchasing of U.S. Debt, and rising energy prices.
u forgot to mention that talking heads will spin that rising gasoline price means economy is recovering.
This has to be Bush’s fault…
Bushneck I or II, Poke ?
I’m quite confident that many will soon come along to proclaim there’s no relationship WHATSOEVER between the Federal Reserve’s printing of copious amounts of fiat and correlating purchasing of U.S. Debt, and rising energy prices.
This is impossible … there is no inflation … QE needs to continue at all costs.
Food and energy don’t fit into the Fed’s view of inflation, but they are at the heart of day to day living expenses for lower income families. QE is the silent massacre.
Gas prices remain tied to Brent pricing due to structural issues with US light crude supply. This should change in coming years as Eagle Ford production ramps up and takeaway capacity from Bakken expands.
Is there a reason why inflationistas come out of the woodwork screaming “behold what QE hath wrought!” every time gas prices spike, but are nowhere to be found when gas prices decline (as it did a few months ago, and several months before that)?
Gasoline price is not the main problem…
Inflation is coming and has nothing to do with QE…
from Kurt Cobbs’s Resource Insights
SUNDAY, FEBRUARY 17, 2013
Natural gas consumers just got a big subsidy from investors, but it can’t continue
It isn’t often that the world’s working stiffs get a chance to fleece rich investors. But that’s essentially what has happened as a result of the vast overinvestment in natural gas drilling in the United States. That overinvestment has led to a glut which last April pushed the price of U.S. natural gas down to $1.82 per thousand cubic feet (mcf), a level not seen since 2001.
Investors have essentially subsidized natural gas through huge loss-making investments, creating an oversupply that has sent prices significantly below the average cost of new production. That means consumers get cheap natural gas while investors kick themselves for not realizing that they were buying into a flawed concept—one that oil and gas consultant Art Berman has called “an improbable business model that has no barriers to entry except access to capital, that provides a source of cheap and abundant gas, and that somehow also allows for great profit.”
The conventional wisdom is that prices are likely to stabilize between $3 and $4 per mcf and stay there for the rest of the decade as the natural gas drilling juggernaut continues. There just one problem with this outlook. The juggernaut has most definitely NOT continued.
Since the last week of August 2008 when the count of active U.S. natural gas drilling rigs peaked at 1606, the number of active rigs has plunged to just 425 for the week ending February 8.
Investors who helped to fuel the boom included hedge funds, wealthy individuals and institutional investors, all of whom chipped in a lot of money to finance the drilling of individual wells for what turned out to be meager payouts. None are eager to get burned that badly again.
In addition, the share prices of publicly traded drillers such as Chesapeake Energy, Devon Energy, Encana, and Southwestern Energy—who put an extraordinarily large proportion of their efforts and funds into finding natural gas (as opposed to oil)—have plummeted. That decline has for now made raising new capital through stock issuance a relatively rare event.
Furthermore, many drillers—who borrowed heavily to help finance their drilling efforts—now find themselves deeply in debt, groaning under the weight of interest charges and loan repayments. But, they’ve been unable to do much except sell assets to counter the devastating effects that low natural gas prices continue to have on their balance sheets.
It’s hard to imagine the same investors and banks deciding that for the rest of the decade, they’ll keep repeating what they’ve just done.
As for the drillers, they have moved on. They have already repositioned their rigs for drilling oil which is currently fetching a splendidly profitable price near $100 a barrel, that is, near the historically high levels seen since 2008. It turns out that even the natural gas drillers don’t believe the natural gas story any more if we judge by their actions. Indeed, even the biggest booster of the cheap (but somehow profitable) natural gas forever narrative, Chesapeake Energy, has given up and turned its focus to oil.
So, where does that leave the working stiffs who heat their homes with natural gas, the utilities who burn it to make electricity, and the chemical manufacturers who use it as a feedstock for many chemicals including nitrogen fertilizer? They all face an uncertain future in which natural gas prices are likely to rise significantly, perhaps even returning to the double-digit nosebleed levels of 2008 before gun-shy investors and drillers will dare to take the necessary steps to bring on significant new supply.
Which begs the question: What if drillers and investors wait that long to move back into the natural gas fields in force?
Petroleum geologist Jeffrey Brown of Export Land Model fame offered a startling response in a conversation at a recent conference I attended. The production decline rates of the shale gas wells that are providing the bulk of new U.S. supplies are so high—60 percent in the first year and up to 85 percent by the end of the second year—that we may never be able to return to today’s production level.
That would certainly put a nail in the coffin of the natural gas abundance narrative.
Obviously gas prices have little to do with supply and demand for the gas itself. There is no way that end demand changes as quickly and as varied in both directions as prices over the last 18 months would suggest.
Its supply and demand for futures contracts on the price of oil……. by people who have no intent on taking delivery of the oil.
Futures and financialization in general distort prices (sometimes a lot) in the short term (but in both directions !!!) In the long term oil and gas prices will grow because exploration and extraction costs are going up and there are still 2 or 3 billions people who are not energy consumers yet and 3 billions of chinese and indians are still consuming pro capita a tiny fraction of what we’re consuming now. Don’t be fooled by the propaganda, we must switch to a much more energy efficient model NOW.
So much has been written about a “pull back”, for the last two years, it has become like the boy crying wolf”. Of course, someone will get it right on their 1st, 2nd or 3rd try.