March 13th, 2012 by admin
Pump prices switch course and ascend again
(WASHINGTON, D.C., March 12, 2012) Crude oil prices turned lower today as bearish international economic news weighed on markets. Most notably, over the weekend, China reported an increased trade deficit and a slowing of export growth, both adding to concerns of an overall slowing of the Chinese economy. China is the world’s second largest oil consuming country, behind the United States. A slowing Chinese economy would be expected to consume less crude oil and products, which puts downward pressure on global prices.
Additionally, crude oil futures are priced in U.S. dollars. When economies weaken overseas, the dollar strengthens and the price of oil becomes relatively more expensive. Oil futures subsequently become a less attractive investment, which exerts downward pressure on prices, as was the case today.
At the close of today’s formal trading on the NYMEX, West Texas Intermediate (WTI) prices were down $1.06 per barrel to settle at $106.34.
Crude oil prices declined during the first part of last week, following reports of easing geopolitical tensions as the U.S. and other countries offered to resume negotiations with Tehran over the Iranian nuclear program. Since December of last year, mounting tensions between Iran and western countries and the associated increased uncertainty of future global crude supply has kept upward pressure on oil prices. This supply concern was further counteracted early last week by a renewed focus on demand worries stemming from sovereign debt issues in the Euro zone. As mentioned above, economic weakness overseas would be expected to drive crude prices lower.
These early week losses were reversed by settlement on Friday, as reports surfaced that the European Union was nearing a positive resolution to the Greek sovereign debt crisis that has weighed on the European economy. The successful reclassification of Greek debt on Friday validated these reports, and combined with positive U.S. jobs numbers, erased the early week losses and propelled crude to back toward its high for the year ($109.77 per barrel on February 24). WTI crude oil settled the week at $107.40 per barrel.
While positive economic news both domestically and overseas pressured oil prices higher last week, gasoline demand continued to be dismal. Last Wednesday’s weekly Department of Energy report measured demand for the week prior at just 8.262 million barrels per day — approximately 930,000 barrels or more than 11% below the same week in 2011. Analysts often look to the four-week average demand for a more accurate comparison versus years prior. Last week this four-week figure was reported at 8.355 million barrels per day. To provide some context, five of the previous six years had seen an average demand at 9 million barrels or more for the same period, and this most recent report marked the lowest figure since March 2001.
Despite this anemic demand, gasoline prices continue to rise as high crude prices, future supply concerns, and signs of economic recovery keep upward pressure on RBOB (wholesale) gasoline futures. The extent of this upward pressure can be seen when considering the Commodity Futures Trading Commission’s (CFTC) Friday report, which provides an indicator of investors’ positions in the market. Last week’s report set yet another record net long bias (contracts speculating that prices will go higher, minus those speculating they’ll go lower) at 95,786 contracts. Each contract is for 1,000 barrels of future RBOB gasoline.
It’s been noted in the AAA Fuel Gauge Report for several weeks, but market historians have reminded that there was a similar heavy long bias for WTI futures last March just before a sharp move lower as traders became worried that the market was overbought.
As crude oil and wholesale gasoline prices continue to move higher, motorists across the country face increased rising gas prices at the pump. The current national average price for a gallon of regular self-serve gasoline is $3.80. This price is three cents more expensive than one week ago, 29 cents more expensive than one month ago, and 24 cents more expensive than one year ago.
The national average price at the pump declined last Tuesday, snapping a streak of 39 consecutive days without a decrease during which time prices had increased 39 cents. While this slide continued both Wednesday and Thursday, the combined decrease at the pump was only slightly more than half a penny. The brief respite for drivers ended on Friday as prices again turned higher and have risen each day since — increasing four cents in four days.
Across the country drivers continue to pay very different prices depending on where they live. Motorists in Hawaii ($4.44), California ($4.36), and Alaska ($4.17) pay the highest average prices in the country, while those in Wyoming ($3.30) and Colorado ($3.42) pay the lowest.
March 6th, 2012 by admin
Concerns range from demand destruction to tensions in Iran
(WASHINGTON, March 5, 2012) Crude oil prices showed signs of strength early today — on continued geopolitical tension in the Middle East and oil supply concerns — but by afternoon these gains had all but disappeared as bearish global economic reports weighed on the market. At the close of formal trading on the NYMEX, West Texas Intermediate (WTI) prices were close to flat, up 2 cents per barrel to settle at $106.72. Following a week that saw crude prices move lower, even as tension with Iran remained a central story, today’s price movement continued to reflect concerns regarding the strength of global economies, especially as high crude prices weigh on global economic outlooks.
Increased uncertainty of future supply puts upward pressure on the price of crude futures, as has been the case during this run-up to begin 2012. At the same time, the recent impact of this supply uncertainty has been largely outweighed by demand concerns from lingering sovereign debt worries in Europe and fears of accelerated demand destruction as crude and gasoline prices remain at lofty levels. In both cases, a weaker global economy is expected to consume less crude oil, which exerts the downward pressure on crude prices that we have seen over the last week. Adding some upward pressure today, was news of an unexpected delay on one of the Enbridge pipeline’s Midwest oil lines following a vehicle accident that resulted in a fire and spill. Operations on the line are halted, however the company has stated that they expect a restart on Wednesday evening. As is the case with global supply concerns, an unanticipated supply and distribution issue, such as this, puts upward pressure on crude prices.
Last week, the AAA Fuel Gauge Report noted the increase in net long positions (contracts speculating that prices will go higher, minus those speculating they’ll go lower) for both WTI and RBOB (wholesale) gasoline futures, which has accompanied the surge in prices. As reported in the Commodity Futures Trading Commission (CFTC) weekly numbers, RBOB gasoline futures two weeks ago were at a then all-time high of 88,204 contracts. Last week’s report showed this net length widening to set a new record at 92,149. The extent of this speculation and the impact of uncertainty on market prices were in full effect late last Thursday, as reports of a pipeline explosion in Saudi Arabia led to a surge in after-hours prices. While Saudi officials quickly deemed the report false, causing prices to rapidly return lower, the knee-jerk reaction had many analysts pointing to the level of speculation in the market.
The ultimate result of this speculation has been that the market prices for both crude oil and gasoline have been pressured higher by future uncertainty in the market rather than supply and demand fundamentals. Market historians note that a similar heavy long bias last March came just before a sharp move lower as traders became worried that the market was overbought.
While analysts and traders continue to discuss the level of speculation in the market, motorists across the country face steadily rising gas prices at the pump — albeit with tremendous regional disparity. The current national average price for a gallon of regular self-serve gasoline is $3.77. This price is seven cents more expensive than one week ago, 29 cents more expensive than one month ago, and 27 cents more expensive than one year ago. The national average price of gasoline has now increased or stayed the same for 39 consecutive days. This is the longest such stretch since prices increased for 44 consecutive days beginning on March 24 of last year and ending on May 5 when prices hit their high for the year at $3.98 per gallon.
While motorists in three states currently pay an average of more than $4.00 per gallon: Hawaii – $4.38, California – $4.34, and Alaska – $4.17. Those in other states are paying less than $3.25: Wyoming – $3.21 and Colorado – $3.23.
February 29th, 2012 by admin
Prices hit daily record highs for last 141 consecutive days
(WASHINGTON, Feb. 28, 2012) The price of West Texas Intermediate (WTI) crude oil fell by $1.21 per barrel today to settle at $108.70 at the close formal trading on the NYMEX. Recent weeks have seen crude prices surge higher on geopolitical tension with Iran, signs of economic improvement in the U.S., and signs of progress toward addressing European sovereign debt concerns. This weekend saw little in the way of market-moving news, and strength in the U.S. dollar today — supported by comments made by German Chancellor Angela Merkel regarding the danger to the European Union (EU) of failing to implement a Greek bailout — provided downward pressure on crude prices.
Crude oil futures are priced in U.S. dollars. As the dollar strengthens relative to currencies abroad, the price of oil becomes more expensive for those holding foreign currencies. Oil futures become a less attractive investment, which exerts downward pressure on prices, as was the case today.
While today’s WTI price is a slight pullback from last Friday (a 298-day high) it is still the highest settlement price to begin a week since the beginning of May 2011.
|Region||Price increase to-date 2012|
Despite only four trading days due to the Presidents’ Day holiday, last week’s increase in crude prices was the third largest since the start of 2009 and the largest since the first week of March 2011, when prices surged above $100 per barrel for the first time since 2008. The price increase last March was driven by violence in Libya, as rebel forces clashed with those loyal to then-leader Muammar Qaddafi, and concerns persisted that this unrest would spread to other countries in the region. The recent price increase again has roots in unrest the Middle East and North Africa — current escalating tension with Iran and continuing violence in Syria — but has also been a result of positive economic reports in the U.S. and signs that the EU may be taking the necessary steps to address that region’s sovereign debt issues.
One other notable similarity between this recent surge and last year is the amount of speculation in the market. Both last March and at present, prices are being driven higher largely by the possibility of a future impact on supply rather than an actual shortage. As reported by the Commodity Futures Trading Commission (CFTC), the first week of March last year ended with the largest net long position (contracts speculating that prices will go higher, minus those speculating they’ll go lower) in the history of WTI futures trading at 335,674 contracts. While last week’s net long position was below the record set last March, it was still a lofty 304,957 contracts. On the other hand, while RBOB gasoline futures for the first week of March 2011 reflected a net long position of 56,686 contracts, last week’s report showed an all-time high of 88,204.
The ultimate result of this speculation is that the market prices for both crude oil and gasoline have been pressured higher by future uncertainty in the market rather than current supply and demand fundamentals. Market historians note that the similar heavy long bias last March came just before a sharp move lower as traders became worried that the market was overbought.
Adding to concern by some traders that crude and wholesale gasoline prices may again be overbought is the continuing demand destruction evident in the market. While weekly Department of Energy numbers last week may have appeared to show a slight rebound and a new high for 2012 at 8.628 million barrels of gasoline consumed per day, this number was still some 500,000 barrels below consumption for the same week in 2011, and a look at the more telling 4-week average shows a more than 6% year-over-year decline.
Despite these now weekly reports of anemic demand, gas prices at the pump continue to rise and have now increased for 32 consecutive days — from a national average of $3.38 on January 26 to $3.70 today. Today’s price is 13 cents more expensive than one week ago, 29 cents more expensive than one month ago, and 35 cents more expensive than one year ago.
As gas prices have risen in 2012, it has not been an even increase across all regions. Those in the center of the country continue to be supplied by refineries with access to cheaper, landlocked crude products, meaning that these areas have been relatively insulated from the increased prices seen in those areas near the coast that must pay prices set on the global market. While Pacific Coast states have seen an average increase of 54 cents per gallon since the start of the year, prices in Mountain West states have increased by only 16 cents during the same period. A full list of price increases by region is included below.
Motorists in three states currently pay an average of more than $4.00 per gallon: Hawaii – $4.32, California – $4.29, and Alaska – $4.09. Only two states currently pay less than $3.20: Wyoming – $3.12 and Colorado – $3.14.
The above information is intended to provide perspective on fuel prices to AAA club spokespersons in speaking to the news media or in preparing news releases. If you have questions about any information contained in this document, do not hesitate to contact Nancy White at (202) 942-2079.