Posts Tagged ‘Oil Supply’

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.

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