Peak Oil is You
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Page added on November 3, 2013
Goodbye, $100 oil. Hello, $3 gasoline!
Crude-oil stockpiles in the U.S. are heading toward a record, pushing off a return to $100-a-barrel oil, and giving drivers a shot at $3-a-gallon gasoline.
“With the overhang of crude supplies building over six weeks, we are unlikely to see $100 oil again very soon,” said Kevin Kerr, president of Kerr Trading International. “This is good news for refiners and ultimately consumers” as it should depress gasoline prices at the pump.
U.S. weekly crude supplies have jumped nearly 8% since mid-September, according to figures from the Energy Information Administration.
At 383.9 million barrels as of the week ended Oct. 25, they’re less than 14 million barrels below the highest level recorded by the EIA. Supplies were at 397.6 million barrels for the week ended May 24, the EIA’s highest weekly level since the agency began collecting data the data in 1978.
The glut of supplies contributed to an almost 6% October drop in West Texas Intermediate crude prices traded on the New York Mercantile Exchange. The December contract CLZ3 -1.85% closed Thursday at $96.38 a barrel.
Prices haven’t been able to close above $100 since Oct. 18 and some analysts don’t see a return to that level anytime soon.
Barring any output problems in Iraq, oil prices may not see $100 again this year, said Richard Hastings, a macro strategist at Global Hunter Securities.
“The market has fully absorbed the Libya problems and now that is offset by U.S. production,” he said. “Recent gains in U.S. oil supplies are a continuation of onshore productivity gains.”
Field production of crude oil rose to about 7.5 million barrels per day in August, EIA data show, up from 6.3 million barrels the same month a year ago.
Pavel Molchanov, senior vice president of equity research at Raymond James, estimates that crude-oil production in 2013 will be at the highest level since 1991, which saw output of 7.4 million barrels per day on an annual basis, according to EIA figures.
“There is no question that rising U.S. production is going to create a less tight oil market over time, putting downward pressure on [oil] prices,” he said, adding that prices are due for a “double-digit correction in 2014.”
Raymond James’ full-year 2014 price forecast is $83 a barrel for WTI crude CLZ3 -1.85% and $95 a barrel for Brent crude UK:LCOZ3 -2.69% .
Good for gas
Expectations for lower prices may not be what oil traders want to hear, but price declines are good news for many.
“We all benefit — from lower gas prices and job creation,” said Phil Flynn, senior market analyst at Price Futures Group. “We will be less impacted by problems in the Middle East and it will make other countries less likely to use oil as a political weapon.”
Watchdog: Syria destroys chemical weapons gear
Syria has completed the destruction of its chemical weapons production equipment, according to an international disarmament agency, bringing an end to the first phase of eliminating the country’s chemical weapons. Naftali Bendavid reports. Photo: Getty Images.
Most of that remains to be seen, but declines in gasoline prices are easy to see.
Prices for gasoline have already hit their lowest prices of the year and they’re expected to fall even further by the end of the year, due in large part to ample inventories and falling costs for oil.
On Tuesday, the average national price for regular unleaded stood at $3.278 a gallon — the lowest since late December of 2012, according to AAA. Thursday’s average was $3.279, down nearly 7% from a year ago.
“Abundant supplies and a decrease in Middle Eastern tensions have helped push down crude-oil costs, which makes it less expensive to produce gasoline,” said Michael Green, a spokesman for motoring and leisure travel group AAA. “Some of these savings get passed onto consumers in the form of cheaper gas prices.”
A switch to winter-blend gasoline from summer-blend gasoline, which have higher environmental standards, lower motor gasoline demand and higher supplies of the fuel are among other reasons for the lower prices at the pump, said Green.
U.S. Energy Information Administration
The switch from summer’s blend started in cooler-weather parts of the country on Sept. 15 and continues through the fall based on local schedules, according to Bill Day, a spokesman for Valero Energy Corp. VLO -0.05% . The winter blend is less expensive than the summer blend and “that has contributed at least somewhat to the drop in gasoline prices,” he said.
So given all that — and the fact that about 70% of the retail gasoline price is tied to the cost of crude oil and prices for crude potentially holding below $100 for now — consumers can expect even lower costs at the pump.
We’re already paying a lot less than then this year’s high of $3.79 per gallon seen on February 27, which was the earliest peak price on record — and AAA expects the national average price to drop to a low of about $3.10 before the year ends.
“Expect a nice holiday bonus in the form of much cheaper gas prices,” said Avery Ash, an AAA spokesman, in a monthly report. “The national average should get tantalizingly close to $3 per gallon, and many consumers will find bargains below that price before the year is over.”
15 Comments on "Goodbye, $100 oil. Hello, $3 gasoline!"
rollin on Sun, 3rd Nov 2013 2:21 pm
Wasn’t it not long ago that we were being told that despite increased US supply gasoline prices were controlled by world prices and that is why we got no real break at the time?
eugene on Sun, 3rd Nov 2013 2:41 pm
Personally, the article tells me nothing other than what is happening in the US. The whole energy situation is extremely complex with things happening everywhere. A decade ago, I decided the energy ride would be stair step process and not a steady decrease in supply. My attitude remains the same ie every increasing population with a finite resource base. Reality rules no matter what and all the magical thinking in the world can’t change it.
J-Gav on Sun, 3rd Nov 2013 3:35 pm
And up and down and up and down will go the roller-coaster … until it flies off the tracks.
BillT on Sun, 3rd Nov 2013 3:38 pm
And next year it will be back to $4+. So?
Distractions for the sheeple as Obama Care destroys their lives, unemployment climbs, food stamps are cut and their paychecks continue to shrink.
bobinget on Sun, 3rd Nov 2013 4:20 pm
Also good news for those still heating with distillates.
(oil prices almost always go lower this time of year, one chart not shown)
Provided Mid East keeps its wars, & now four million war Refugees in their own backyards.
Such diaspora, especially in winter months, place enormous strains on political stability of neighboring nations.
Current grains stocks could be used but where are funds to pay for distribution? If existing grains stocks
manage to reach a majority of those four million mostly Syrian refugees, funding found, what about
feed stocks for next years?
Provided of course, so called “Syrian Rebels”, backed by Saudi Arabia, Israel, US, kick out Assad, backed by Iran and Russia and China. I hate over used expressions like ‘Perfect Storm’ or “What could go Wrong?” but there you are.
The latest news has frendenemy, nuke armed, Pakistan burning US flags in the street again cause we
killed the head of Pakistan’s Taliban the day before so called peace talks were to begin. Instead of Egypt’s Army admitting hiding big name terrorists in country they are screaming the US has invaded again.
In Egypt, both mostly secular army and Muslim Brotherhood blame the US for virtually all problems.
Kerry is less popular in Egypt then a US Congressman
during the last week of the month for SNAP recipients.
Welcome $3. gasoline $3.50 diesel. What COULD go wrong?
rockman on Sun, 3rd Nov 2013 4:30 pm
Eugene – Does it? I just sold 2 loads of oil in Texas for $102.42/bbl and 4 loads in La. for $104.22/bbl. Not sure but I think he’s talking about the prices of oil futures contracts and not well head prices. They don’t always track each other. Actually my well head prices have risen in the past month or so from around $98+/bbl.
Newfie on Sun, 3rd Nov 2013 5:22 pm
I’m going out to buy a brand new 12 cylinder Hummer to roar up and down the freeway all day long. Wheeeeee!
Plantagenet on Sun, 3rd Nov 2013 5:36 pm
Darn those evil oil speculators for causing gasoline prices to go down!
Keith_McClary on Sun, 3rd Nov 2013 9:15 pm
So, some people own $40 billion worth of oil sitting in tanks earning no income (and paying storage if they don’t own the tanks).
Why, exactly?
I know it partly has to do with seasonal demand and limited pipeline capacity. Speculation and the requirement for physical product to satisfy futures contracts may pay a part. Any other reasons? And which are the main reasons?
westexas on Sun, 3rd Nov 2013 9:23 pm
US Refineries have about 7.5 days of supply in excess of Minimum Operating Level (about 270 million barrels).
westexas on Sun, 3rd Nov 2013 9:26 pm
We have of course seen a cyclical pattern of higher annual highs and higher annual lows in global (Brent) crude oil prices in recent years, but I think that the rates of change between successive annual price lows, or troughs following annual oil price peaks, is very interesting.
Peak to Trough Annual Brent Crude Oil Prices, 1997 to 2013
1997: $19
1998: $13
2000: $29
2001: $24 (1998 to 2001 rate of change: +20%/year)
2008: $97
2009: $62 (2001 to 2009 rate of change: +12%/year)
The 11 year 1998 to 2009 overall of change in trough prices was 14%/year. And then we have 2012 to 2013.
2012: $112
2013: $108 (Est. price)
Based on estimated price for 2013, the four year 2009 to 2013 rate of change in the trough price would be 14%/year ($62 to $108).
The long term 15 year 1998 to 2013 rate of change in trough prices would also be 14%/year ($13 to $108).
If the (+14%/year rate of change) pattern holds, and we were see a year over year decline in annual Brent crude oil prices in 2017, it would be down to an annual Brent price of about $190 in 2017.
Following is an an excerpt from a recent OECD study which forecasts sharply higher global crude oil demand (and potentially) much higher oil prices:
“A return to world [economic] growth to slightly below pre-crisis rates would be consistent with an increase in the price of Brent crude to far above the early-2012 levels by 2020. This increase would be mostly driven by higher demand from non-OECD economies – in particular China and India. The expected rise in the oil price is unlikely to be smooth. Sudden changes in the supply or demand of oil can have very large effects on the price in the short run.”
Link to OECD source:
http://www.financialsense.com/contributors/joseph-dancy/oecd-study-forecasts-sharply-higher-global-crude-oil-demand
Dave Thompson on Sun, 3rd Nov 2013 10:23 pm
The Multi-international corporate bankers,military industrial media complex, is dropping the price so we can all go out and spend more money for the Holiday season. Year over year same thing .
mike on Sun, 3rd Nov 2013 10:34 pm
Pretty good sign the US economy is flat lining again. The economy will gain momentum again in spring 2014, oil prices will go up, economy splutters again, price goes down.
GregT on Mon, 4th Nov 2013 12:28 am
US government shutdown, just in time for the Christmas shopping season.
Everything is fine people, now get out there and consume!
george on Mon, 4th Nov 2013 2:03 pm
thanks for the monday morning laugh