How High Will Gas Prices Go This Summer?
One of the Marketwatch reporters just asked me for my views on where gasoline prices are going this summer. I gave her a lot of information, and usually she uses just a sentence or two. So here's my analyis...
I’ll give you my price, but first I want to lay out the factors I’m considering:
1) Some refiners are offline for maintenance right now. They’ve been holding things together with duct tape and chewing gum for awhile, but it is maintenance season, and many ran longer and harder than they ordinarily would because some were taken offline for months after Katrina. An offline refinery produces no gasoline, hence, that’s bullish for prices.
2) Just today, the latest report was that gasoline stocks fell by 3.9 million barrels – about twice what was expected. That’s not a good start if you want gas prices to stay under $4 this summer. The switch from MTBE affects how much gasoline can be produced. MTBE was a substantial input into the gasoline pool, and ethanol supplies can't make up the difference. We can expect the EPA to start writing oxygenate waivers to deal with gasoline shortages this summer.
So, if they do that, it would take some momentum out of gas prices. Those waivers probably aren’t being considered by the market right now. Bearish if we get waivers, bullish if we don’t.
3) Global producers can’t keep up with crude demands. Higher crude oil prices will drive up gasoline prices. From Reuters: OPEC will need to pump more oil than previously expected to meet rising world demand and cover a shortfall from other producers such as Russia, the International Energy Agency said on Wednesday. More on Russia, where the crapski is hitting the fan, here. So, that’s bullish. And don’t say we’ll just buy more from Canada. There’s too much Canadian heavy crude for refineries to handle now.
4) More than six months after the 2005 hurricanes, almost 23% of oil output in the Gulf of Mexico (GOM) is still shut down – about 340,000 barrels per day. And about 10% of natural gas output in the GOM is gone, too. Bullish!
5) Hurricane season is right around the corner. I wrote about the severe threat we’re facing from hurricanes this season my blog today. You’ll find that here . Bottom line: We’re so screwed. You can’t accurately predict the weather, but I’d bet on a major disruption of GOM oil and gas production at least once this summer. Probably more than once. Bullish.
Eventually, rising prices will force people to conserve, right? I mean, the big problem is that we use too much oil and drive SUVs that are big enough to have their own time zones. But did you know that many Americans are already changing their driving habits? A recent Gallup poll shows that nearly half of all Americans have cut back "significantly" on their driving due to high gas prices. You’d think that would be bearish. But people are already changing their driving habits and gas prices AREN’T going down. As a consumer, I find that worrisome. As a commodities watcher, I find that bullish.
I’ll give you my price, but first I want to lay out the factors I’m considering:
1) Some refiners are offline for maintenance right now. They’ve been holding things together with duct tape and chewing gum for awhile, but it is maintenance season, and many ran longer and harder than they ordinarily would because some were taken offline for months after Katrina. An offline refinery produces no gasoline, hence, that’s bullish for prices.
2) Just today, the latest report was that gasoline stocks fell by 3.9 million barrels – about twice what was expected. That’s not a good start if you want gas prices to stay under $4 this summer. The switch from MTBE affects how much gasoline can be produced. MTBE was a substantial input into the gasoline pool, and ethanol supplies can't make up the difference. We can expect the EPA to start writing oxygenate waivers to deal with gasoline shortages this summer.
So, if they do that, it would take some momentum out of gas prices. Those waivers probably aren’t being considered by the market right now. Bearish if we get waivers, bullish if we don’t.
3) Global producers can’t keep up with crude demands. Higher crude oil prices will drive up gasoline prices. From Reuters: OPEC will need to pump more oil than previously expected to meet rising world demand and cover a shortfall from other producers such as Russia, the International Energy Agency said on Wednesday. More on Russia, where the crapski is hitting the fan, here. So, that’s bullish. And don’t say we’ll just buy more from Canada. There’s too much Canadian heavy crude for refineries to handle now.
4) More than six months after the 2005 hurricanes, almost 23% of oil output in the Gulf of Mexico (GOM) is still shut down – about 340,000 barrels per day. And about 10% of natural gas output in the GOM is gone, too. Bullish!
5) Hurricane season is right around the corner. I wrote about the severe threat we’re facing from hurricanes this season my blog today. You’ll find that here . Bottom line: We’re so screwed. You can’t accurately predict the weather, but I’d bet on a major disruption of GOM oil and gas production at least once this summer. Probably more than once. Bullish.
I expect that if there are no more than usual problems, we should see
$3.50 per gallon gasoline this summer. If a hurricane hits the Gulf of Mexico hard, gasoline could easily go over $4 a gallon. If a couple refineries are taken out by hurricane damage, we could see $5 a gallon.
Eventually, rising prices will force people to conserve, right? I mean, the big problem is that we use too much oil and drive SUVs that are big enough to have their own time zones. But did you know that many Americans are already changing their driving habits? A recent Gallup poll shows that nearly half of all Americans have cut back "significantly" on their driving due to high gas prices. You’d think that would be bearish. But people are already changing their driving habits and gas prices AREN’T going down. As a consumer, I find that worrisome. As a commodities watcher, I find that bullish.
Check out my new gold and energy blog at MoneyAndMarkets.com
posted by Sean Brodrick @ 2:48 PM
<< Home