Fuel Freedom Staff

Oil makes biggest one-day price jump in 2 years

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Have we seen the bottom of the great oil-price plunge of 2014?

Experts say not yet. But oil prices rose sharply Monday, making their biggest jump in two years: Nymex crude-oil futures rose 4.78 percent, to $69.31 a barrel. And Brent crude, the international benchmark, rose 3 percent, to $72.54. It had been down as low as $67.53 earlier in the day, the lowest it’s been since July 2009.

Oil is down about one-third since June, and late last week the commodity plunged even more precipitously after OPEC announced it would not stem the price drop by ramping up production among its 12 member nations. But some analysts saw Monday’s jump as merely profit-taking after last week’s sell-off.

From The Wall Street Journal:

… many market watchers were skeptical that Monday’s gains signaled that oil prices had reached their bottom, pointing to global supplies that continue to overwhelm demand.

Many investors and analysts believe with OPEC on the sidelines it will take cutbacks by companies in the U.S. and Canada to bring supply and demand in line and pull the market out of its swoon. That day may not come until deep into 2015 or beyond, some analysts say.

From Reuters:

“The market clearly got a little overdone to the downside and now it’s coming back up, proof that there will be a response from the shale patch to these low prices,” said John Kilduff, partner at energy hedge fund Again Capital in New York. “Several shale companies are already reporting capital expenditure reductions next year as their profit margins get thinned out.”

On Wall Street, shares of shale energy companies such as Denbury Resources (DNR.N) and Newfield Exploration (NFX.N) took a beating for a second straight session, down about 5 percent each in late afternoon trade.

Data reviewed by Reuters on Monday showed the new low-price environment for oil might have started affecting U.S. shale production, with a 15 percent drop in permits issued for new shale wells in October.

Fuel Freedom Staff

OPEC stands pat … will $70 oil be the new normal?

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The big news in the international oil markets last week was that OPEC decided not to cut production, which would have propped up free-falling prices, at least temporarily.

OPEC’s non-action sent oil prices falling further Friday, with the Brent benchmark slipping below $70 for the first time in four years.

NPR reports that some experts say oil in the range of $70 a barrel could last through 2015:

Igor Sechin, the head of Russia’s Rosneft, says he thinks oil prices will average $70-75 per barrel through 2015. That prediction was in line with what Bill Hubard, chief economist at Markets.com, told Reuters: “I think $70 a barrel will be the new norm. We could see oil go considerably lower.”

Some OPEC member nations, including Iran and Venezuela, which need a higher oil price to pay for their generous public services, had been pushing for the cartel to ease back on production to halt the plunge in prices. A moderate pullback would have come amid a global oil glut, thanks in part to reduced demand in Asia and Europe, as well as soaring production in the U.S.

Iran’s oil minister, Bijan Namdar Zanganeh, said OPEC’s decision was no guarantee that the United States would scale back production in North Dakota and Texas, a surge aided by advances in hydraulic fracturing.

“High prices are a disadvantage to OPEC’s market share,” Zanganeh said, according to Bloomberg. “If you want to increase your share, you have to reduce prices, but you can’t do it through ‘shock therapy’ over the course of three months if you want to change everything.”

Fuel Freedom Staff

Whatever OPEC does, U.S. oil companies will keep drilling

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Bloomberg has a story about what U.S. drillers will do in response to whatever OPEC does this week at its regular meeting.

OPEC, led by its top producer, Saudi Arabia, will do one of two things: Nothing, which means the cartel’s output will remain unchanged, and crude prices will say flat (or keep sliding). Or it could cut production, which “would lift prices and profits across the board and help finance further U.S. energy innovation,” the Bloomberg story says.

Either way, U.S. producers will have the same response: Drill on.

“The industry is very resilient, as strong as ever in recent history,” Tony Sanchez III, chief executive of Texas producer Sanchez Energy Corp. (SN), said in an interview. “The technological advances we’ve made underpin virtually everything right now.”

A continued price plunge would put more pressure on U.S. companies, but they’re increasingly insulated by OPEC’s actions, the story says.

The swagger of U.S. producers in the face of plunging oil prices shows the confidence they’ve gained from upending OPEC’s six decades of market dominance with technology that wrings oil from dense rock for prices as low as $40 a barrel. The shale boom has placed the U.S. oil industry in its strongest position since OPEC began flexing its pricing power in the early 1970s.

Fuel Freedom Staff

Redlands to offer CNG /LNG fueling stations in town

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Residents and businesses in need of Compressed Natural Gas (CNG) for their vehicles will have an increased ability to fill up in town.

The city has added new Compressed Natural Gas fuel dispensers at its corporate yard to allow up to four alternative fuel vehicles to fill up at the same time.

“There’s not a whole lot of stations around that you can get that fuel source,” said Councilwoman Pat Gilbreath, adding that the availability of the fuel stations give residents more options for the types of vehicles they can purchase.

Compressed Natural Gas is a clean burning alternative fuel that helps reduce carbon emissions and costs less than fossil fuels, according to a city news release.

Read more at: Redlands Daily Facts

Fuel Freedom Staff

Gasoline will average $2.94 in 2015, feds predict

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Are low gas prices going to stick around for a while? The U.S. government thinks so.

The federal Energy Information Administration issued its monthly report on Thursday, and it predicts that gasoline will remain below $3 a gallon throughout 2015.

Specifically, gas prices will average $2.94 in the new year, 45 cents cheaper than this year. That will let consumers keep a total of about $61 million in their collective pockets.

According to AP:

That may not seem like a lot in the context of a $17.5 trillion U.S. economy, but economists say it matters because it immediately gives consumers more money to spend on other things. Consumer spending accounts for 70 percent of the U.S. economy.

“It would be a reversal of the trend over the last few years where consumers can’t stretch a dollar far enough,” says Tim Quinlan, an economist at Wells Fargo.

Quinlan says the price of gasoline is one of the three big drivers of consumer confidence, along with stock prices and the unemployment rate. “Lately all three are moving in the right direction,” he says.

Energy analyst Michael Lynch, writing in Forbes, acknowledges that “Some will scoff at the drastic change in the forecast, arguing that such a big revision cannot be credible, and that an economic recovery next year should bring higher prices.”

But analysts usually make predictions based on the current price of oil, and don’t predict wild swings one way or the other. However, increased global supply should keep prices down in 2015, according to Lynch’s own analysis:

A strong global economy next year, combined with slowing shale oil production growth and/or instability in Libyan production should tighten markets, but might not raise prices much, certainly not to $100 a barrel. And a diplomatic agreement with Iran that ends sanctions, combined with rising Iraqi and Kurdish production, will probably turn $80 into the new price ceiling. Longer run, I remain an outlier with a firm belief that even $80 a barrel cannot be sustained in the wake of rising global oil supply.

Fuel Freedom Staff

Brent crude falls below $80 for first time since 2010

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The price of Brent crude, the global benchmark for oil, dropped Wednesday below $80 for the first time since 2010.

As Financial Times points out, the price fell despite OPEC announcing that crude output had declined by about 230,000 barrels a day in October, compared with September.

But markets didn’t perceive this as a deeper change in policy and instead focused on comments made by Saudi Arabia’s oil minister, Ali al-Naimi.

Mr. Naimi broke months of silence on Wednesday to speak publicly about the Gulf nation’s stance on the oil market.

He kept mum on whether Saudi Arabia would cut output to remove surplus oil from the market in response to dramatically lower Brent crude prices. However he dismissed claims that it had triggered a “price war”.

“Talk of a price war is a sign of misunderstanding, deliberate or otherwise, and has no basis in reality,” Mr Naimi said, according to Reuters. “We do not set the oil price. The market sets the prices.”

Fuel Freedom Staff

CNNMoney: $3 gasoline can’t last

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CNNMoney’s Ivana Kottasova has a post today about the International Energy Agency’s warning about oil prices being too low:

It says plunging oil prices will damage the U.S. shale oil boom and cause supply problems down the road.

Oil prices have dropped by 30% in the past four months, putting oil producers under pressure. The low prices could deter investment in production, which will eventually hurt supply, the agency’s chief economist Fatih Birol said.

In its latest outlook, the IEA did say that lower oil prices could could help oil importing countries and their economies and even lead to increased demand.

But higher prices were needed to ensure future energy security.

Arctic Leaf

10 reasons why falling oil prices is good for the U.S. and replacement fuels

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While they might not make the Late Show with David Letterman, here are ten reasons why the fall in oil and gas prices, if it is sustained for a while, is, on balance, good for the U.S. and replacement fuels.

  1. U.S. consumers are getting a price break. While the numbers differ by researchers, most indicate that on average they have saved near $80 billion. According to The Wall Street Journal, every one cent drop in gasoline adds approximately a billion dollars to nationwide household consumption.
  2. Low- and moderate-income households will have extra money for basic goods and services, including housing, health care and transportation to work.
  3. Increased consumer spending will be good for the economy and overall job growth. Because of the slowdown in production and the loss of jobs in the oil shale areas and Alaska, the net positive impact on GNP will be relatively small, higher at first as consumers make larger purchases, and then lower as oil field economic declines are reflected in GNP.
  4. Low prices for oil and gas will impede drilling in tight oil areas and give the nation time to develop much-needed regulations to protect environmentally sensitive areas. Oil is now under $80 a barrel. The price is getting close to the cost of drilling. Comments from producers and oil experts seem to suggest that $70-75 per barrel would begin to generate negative risk analyses.
  5. Low prices for oil and gas will make it tough on Russia to avoid the impact of U.S. and EU sanctions. Russia needs to export oil and gas to secure revenue to meet budget constraints. Its drilling and distribution costs will remain higher than current low global and U.S. prices.
  6. Low prices of oil and gas will reduce U.S. need to import oil and help improve U.S. balance of payments. Imports now are about 30 percent of oil used in the nation.
  7. Low prices of oil and gas will further reduce dependence on Middle East oil and enhance U.S. security as well as reduce the need to rely on military intervention. While the Saudis and allies in OPEC may try to undercut the price of oil per barrel in the U.S., it is not likely that they can sustain a lower cost and meet domestic budget needs.
  8. Low prices of oil and gas will create tension within OPEC. Some nations desiring to improve market share may desire to keep oil prices low to sustain market share, others may want to increase prices and production to sustain, if not increase, revenue.
  9. Low prices of oil and gas will spur growth in developing economies.
  10. Low prices for oil and gas will likely secure oil company interests in alternative fuels. It may also compel coalitions of environmentalists and others concerned with emissions and other pollutants to push for open fuel markets and natural gas based ethanol, methanol and cellulosic-based fuels as well as a range of renewable fuels.

We haven’t reached fuel Nirvana. The differential between gasoline and corn-based E85 has lessened in most areas of the nation and now appears less than the 20-23 percent needed to get consumers to think about switching to alternative fuels like E85. But cheaper replacement fuels appear on the horizon (e.g., natural gas-based ethanol) and competition in the supply chain likely will reduce their prices. Significantly, in terms of alternative replacement fuels, oil and gas prices are likely to increase relatively soon, because of: continuing tensions in the Middle East, a change of heart on the part of the Saudis concerning maintaining low prices, the increased cost of drilling for tight oil and slow improvements in the U.S. economy resulting in increased demand. The recent decline in hybrid, plug-in and electric car sales in the U.S. follows historical patterns. Cheap gas or perceived cheap gas causes some Americans to switch to larger vehicles (e.g., SUVs) and, understandably, for some, to temporarily forget environmental objectives. But, paraphrasing and editing Gov. Schwarzenegger’s admonition or warning in one of his films, unfortunately high gas prices “will be back…” and early responders to the decline of gasoline prices may end up with hard-to-sell, older, gas-guzzling dinosaurs — unless, of course, they are flex-fuel vehicles.