Posts Tagged ‘Global Economy’

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.

Saber rattling in Persian Gulf still affecting crude price

Washington, Jan. 9, 2012 — West Texas Intermediate (WTI) crude oil prices decreased by 25 cents to settle at $101.31 per barrel at the close of formal trading on the NYMEX, as prices continued to pull back from the multi-month high of $103.22 set last Wednesday.  Today’s decrease was attributed to ongoing economic stability concerns with the euro zone which outweighed the continued worry of a supply disruption surrounding “saber rattling” between Iran and the U.S. in the Persian Gulf that had been credited with last week’s run-up.  Global economic weakness, and the associated decrease in demand for oil, exerts downward pressure on the price of crude.

As discussed in this space last Tuesday, tensions have been escalating between Iran and both the U.S. and European Union (EU).  In response to the ongoing development of Iran’s nuclear program, the U.S. and EU announced economic sanctions designed to put pressure on the Iranian government to abandon its program. Iran responded to this action by conducting military exercises in the Strait of Hormuz, with the intended response of sending oil prices higher on the possibility of supply disruptions. One-third of all global seaborne oil passes through the narrow channel between Iran and Oman.  While most analysts continued to classify the action as “saber-rattling,” the escalating tension, as reports leaked of a framework for an official EU ban of Iranian oil imports, was enough last Wednesday to pressure crude prices to their highest level since the first half of 2011. 

Wednesday’s geopolitical news overshadowed what was another round of dismal U.S. gasoline demand data, as the weekly SpendingPulse report showed demand at an average of 8.16 million barrels per day for the week ending December 30 — three percent lower than the same period in 2010 and the lowest weekly total since the group began tracking demand in 2004.  The report also noted that U.S. gasoline demand has now fallen for ten consecutive months.   This sluggish demand news continued on Thursday with a weekly Department of Energy report showing stock builds for both crude oil and gasoline and reporting an implied crude oil demand of 18.023 million barrels per day — one million barrels less than the same week in 2010 and the second lowest total of 2011.  WTI prices settled at $101.81 per barrel at the close of trading on Thursday, a decrease of $1.41 per barrel.  This bearish sentiment continued to outweigh geopolitical concerns on Friday and WTI ended the week at $101.56 per barrel, a decline of $1.66 from the settlement to begin the week.

As crude oil prices remain fresh off of multi-month highs the price of gasoline at the pump has also increased. The current national retail average price for a gallon of self-serve regular gasoline is $3.37. Today’s price is nine cents more expensive than one week ago, eight cents more expensive than one month ago and 28 cents more expensive than one year ago.

As North America’s largest motoring and leisure travel organization, AAA provides more than 53 million members with travel, insurance, financial and automotive-related services. Since its founding in 1902, the not-for-profit, fully tax-paying AAA has been a leader and advocate for the safety and security of all travelers. AAA clubs can be visited on the Internet at


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