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Gas prices start to rise again, and drivers notice

Oil Gas prices are on the rise again, and consumers, who barely had time to enjoy their savings over the past few months, are taking notice.

“It’s still low by our standards,” Pete Diaz of San Jose told the Mercury News. “I’m not complaining — yet.”

Diaz paid a little less than $2.20 a gallon when he filled up Friday at an ARCO. That was actually a bargain: On Monday, according to AAA’s Daily Fuel Gauge Report, the average in San Jose was $2.636 for regular gas, up from $2.443 a week earlier.

The national average Monday was $2.177, up from $2.056 a week earlier.

Los Angeles-based Gas Buddy reports that, over the last week, the proportion of stations selling gas for under $2 a gallon has shrunk from more than 50 percent to 27 percent.

Stories are popping up all over the country about rising gas prices: from Maine to New Jersey to Texas to Arizona.

Oil prices dropped by 60 percent between June and January, a trend analysts spectacularly failed to predict. But in a four-day span between Jan. 30 to Feb. 3, oil surged 18 percent.

Gasoline prices, in turn, went up in an instant, a clear example of the market volatility that makes it nearly impossible to plan household budgets, much less a career. The latest round of job cuts was just announced by Weatherford International, one of the world’s largest oilfield services companies. It will lay off 5,000 employees, 85 percent of them in the United States.

Prices might keep on rising. Major media outlets reported Monday that oil was still on the rise, based on OPEC forecasting higher demand in 2015.

Other factors contributing to the price increase include:

  • The looming seasonal switch to “summer blends” of gasoline. As Gas Buddy notes: “As air temperatures warm, refineries also begin the progressive switch to cleaner variations of gasoline, which also adds to cost.”
  • Refineries are undergoing maintenance to prepare for the summer switch.
  • Refinery workers around the country are striking for better health benefits. It’s the largest such walkout since 1980.

Now it’s your turn to tell your story. How does the day-to-day price of gas affect you and your business?

 

Oil prices dip as blizzard strikes the Northeast

OPEC’s secretary-general, Abdullah al-Badri, said Monday that the great oil price-drop could be over, and that it could start to climb again soon.

“Now the prices are around $45-$50, and I think maybe they reached the bottom and will see some rebound very soon,” he told Reuters in London.

Al-Badri also warned that oil might spike to $200.

That may well occur in the future. But for now, the floor hasn’t been reached. Prices rallied briefly after al-Badri’s comments, but they settled down in Monday’s trading session. Brent, the international benchmark, fell 1.3 percent to $48.16. U.S., or West Texas Intermediate, fell 1 percent to $45.15, but narrowed after the restart of a refinery in Whiting, Indiana.

Some experts had anticipated movement in the markets following the death of Saudi King Abdullah last week. But his successor, half-brother Salman, pledged “continuity in energy and foreign policies on Friday and was quick to retain veteran oil minister Ali al-Naimi, sending a message aimed at calming a jittery oil market,” Reuters reported.

The massive blizzard in the Northeast affected crude prices: The anticipated storm caused prices of heating oil to rise, but jet fuel dropped, in anticipation of canceled flights.

As Reuters reported:

The blizzard will result in canceled flights, less driving and increased use of heating oil, creating mixed indicators for crude oil, Matt Smith, an analyst at Schneider Electric, said.

“We saw this with Hurricane Sandy,” Smith said.

The Atlantic: Why the U.S. still needs Saudi Arabia

The Atlantic’s Matt Schiavenza has some pointed commentary on the longtime U.S.-Saudi alliance, arguing that the United States needs the Middle East kingdom “more than ever.”

Following the death of King Abdullah last week at age 90, following a lung infection, President Obama cited his “enduring contribution to the search for peace” in the region. Secretary of State John Kerry said he was a “man of wisdom and vision.”

Schiavenza then lists the ways in which Saudi policy undermines the American praise, including the lack of rights of women, and the case of blogger Raif Badawi, who was sentenced to 1,000 lashes and 10 years in prison for defending atheism.

Schiavenza writes:

Contrary to President Obama’s statement, Saudi Arabia’s role in brokering Middle Eastern peace has, at best, been unhelpful. King Abdullah bitterly opposed Washington’s support of pro-democracy protesters in Egypt and urged President Obama to use force to preserve Hosni Mubarak’s dictatorship. Since Abdel Fattah al-Sisi assumed the country’s leadership in 2013, Riyadh has helped finance his brutal suppression of the country’s Muslim Brotherhood. Saudi Arabia has also resisted the rise of Shia movements in the region out of fear that Iran, their main rival, will gain influence. When Shia protesters threatened the Sunni dictatorship in neighboring Bahrain, Saudi Arabia dispatched its military to suppress the uprising. Riyadh’s support of Syrian rebels, too, has backfired: Islamic State fighters have benefited from Saudi money and weapons.

The reason the United States continues to “put up with” Saudi Arabia, the writer contends, is oil. And despite ramped-up production in the U.S. shale-oil fields, the U.S. will continue to need Saudi oil. Currently there’s a glut that might worsen, since Abdullah’s successor, his half-brother Salman bin Abdul Aziz, appears unlikely to reduce oil production to stem the drop in price. Right now the U.S. produces about 9 million barrels of oil a day, comparable with Saudi output.

But the kingdom, which is the leading oil-producer in OPEC (which controls 40 percent of the world’s oil supply), is “well-positioned to survive a sustained drop in the price of oil,” Schiavenza writes, adding:

Riyadh generally needs oil to trade at $80 a barrel in order to balance its budget. But with $750 billion stashed away in reserve, the kingdom faces little pressure to reduce supply and raise the price. In addition, Saudi Arabia and fellow OPEC members Kuwait and the United Arab Emirates have proved reserves of 460 billion barrels. The United States, by contrast, has proved reserves of just 10 billion—and the U.S. Energy Information Agency forecasts that American shale oil production will plateau in 2020.

Saudis might actually increase oil output

Saudi Arabia isn’t cutting production anytime soon, despite lobbying from some of the 12-nation cartel’s members to try to stem falling oil prices. In fact, the Saudis might actually boost output to gain new customers.

Reuters reported that Saudi Arabia’s oil minister, Ali al-Naimi, said it’s not in OPEC’s interest to cut production quotas no matter how far prices fall:

After a weekend of comments from several Gulf OPEC members reiterating their intent not to intervene in oil markets, despite oil prices that have halved since June, Ali al-Naimi told the Middle East Economic Survey it was “not in the interest of OPEC producers to cut their production, whatever the price is” — his starkest comments yet.

Naimi also said the Saudis might boost output instead to grow their market share and that oil “may not” trade at $100 again. “The best thing for everybody is to let the most efficient producers produce,” he told a conference in Abu Dhabi at the weekend.

Olivier Jakob, an oil analyst at Petromatrix OIl in Switzerland, commented in an earlier version of the Reuters story:

“We are going down because you have some OPEC ministers who come every day making statements trying to drive the market down. … They come every day to convey the message that they are not doing anything to restrict supplies and that they basically want oil prices to move lower to reduce production in the U.S.”

Brent crude dropped $1.33, to $60.05.

Four new anticipated novels about the decline of oil and gas prices

Harlequin novel cover“We are drowning in information but starved for knowledge,” said John Naisbitt, American author and public speaker. Because of this fact, intuition and instinct, rather than rational thinking, often guides leadership behavior. Guess right, based on what your intuitive self or instinct tells you concerning your iterative policy decisions — particularly the big ones — and the payoff for you and the nation may well be significant. Guess wrong, and the nation could be hurt in various ways and you might not be around for a long time, or get buried in an office close to a windowless washroom. Charles Lindblom, noted political scientist, probably said it correctly when he noted that in complex environments we often make policy by “muddling through.”

Confusion reigns and analyses are opaque and subject to quick amendment concerning the current, relatively rapid decline in oil and gasoline prices. Indeed, key government institutions such as the EIA (Energy Information Administration) and the IEA (International Energy Agency) appear to change their predictions of prices of both, almost on a daily basis. Oil and gas production, as well as price evaluations and predictions resulting from today’s imprecise methodologies and our inability to track cause-and-effect relationships, convert into intriguing fodder for novels. They do not often lend themselves to strategic policy direction on the part of both public and private sector. Sometimes, they do seem like the stuff of future novels, part fiction, and, perhaps, part facts.

Ah … the best potential novels on the decline of oil and gas, particularly ones based on foreign intrigue, will likely provide wonderful bedtime reading, even without the imputed sex and content of the old Harlequin book covers and story lines. Sometimes their plots will differ, allowing many hours of inspirational reading.

Here are some proposed titles and briefs on the general theme lines for four future novels:

An Unholy Alliance: The Saudis and Qatar have joined together in a new alliance of the willing, after secret conversations (likely in a room under a sand dune with air conditioning built by Halliburton, in an excavated shale play in the U.S., a secret U.S. spaceship, or Prince Bandar’s new jet). They have agreed to resist pressure from their colleagues in OPEC and keep both oil production and prices low. By doing so, they and their OPEC friends would negatively affect the Russian and Iranian economy and limit ISIS’s ability to convert oil into dollars. Why not? The Russians and the Shiite-dominated Iranians have supported Syria’s Assad and threated the stability of Iraq. Qatar and the Saudis support the moderate Syrian rebels (if we can find them) but not ISIS, and are afraid that Iran wants to develop hegemony over Iraq and the region, if they end up with the bomb. Further, ISIS, even though it’s against Assad, is not composed of the good kind of Sunnis, and has learned a bit from the Saudis about evil doings. If ISIS succeeds in enlarging the caliphate, it will threaten their kingdoms and the Middle East. According to a mole in the conversations, Russia was really thrown into the mix because, sometimes, it doesn’t hurt to show that you might be helping the West while paying attention to market share.

OPEC in Fantasy Land: Most OPEC members see U.S. oil under their bed at night and have recurring nightmares. “Why,” they asked, “can’t we go back to the future; the good old days when OPEC controlled or significantly influenced oil production and prices in the world?” Several members argued for a counter intuitive agreement.

Let’s surprise the world and go against our historical behavior. Let’s keep prices low, even drive them lower. It will be tough on some of us, whose budgets and economy depend on high oil prices per barrel, but perhaps our “partner” nations who have significant cash reserves, like my brothers (the hero of this novel started to say sisters, but just couldn’t do it) in the Kingdom, can help out.

Driving prices lower, agreed the Saudis, will increase our collective market share (really referring to Saudi Arabia), and may permanently mute any significant competition from countries such as Russia, Mexico, Iraq, Venezuela, and others. But, most importantly, it will probably undercut U.S. producers and lead to a cutback in U.S. production. After all, U.S. production costs are generally higher than ours. Although some delegates questioned comparative production cost numbers and the assumption that the U.S. and its consumer-driven politics will fold, the passion of the Saudis will win the day. OPEC will decide to continue at present production levels and become the Johnny Manziels of oil. Money, money, money? Conspiracy, conspiracy, conspiracy!

Blame it on the Big Guys: The U.S. will not escape from being labeled as the prime culprit in some upcoming novels on oil. The intuitive judgments will go something like this: Don’t believe what you hear! U.S. producers, particularly the big guys, while worried about the fall in oil and gas prices, on balance, believe both will have intermediate and long-term benefits. They have had it their way for a long time and intuitively see a rainbow around every tax subsidy corner.

Why? Are they mad? No? Their gut, again, tells them that what goes down must come up, and they are betting for a slow upward trend next on the following year. Meanwhile, technology has constrained drilling costs. Most feel they can weather the reduced prices per barrel and per gallon. But unlike the Saudis and other OPEC members, they are not under the literal gun to meet national budget estimates concerning revenue. Like the Saudis, however, with export flexibility in sight from Congress, many producers see future market share as a major benefit.

Split Dr. Jekyll and Mr. Hyde personalities exist among the U.S. producers. Jekyll, reflecting the dominant, intuitive feeling, supports low prices. The Saudis and OPEC can be beaten at their own game. We have more staying power and can, once and for all time, reduce the historic power of both concerning oil. While we are at it, big oil can help the government put economic and political pressure on Russia, Iran and ISIS, simultaneously. Wow, we may be able to get a grant, change our image, a Medal of Freedom and be included in sermons on weekends!

Hyde, who rarely shows up at the oil company table until duty calls, now joins the group. He offers what he believes is sage, intuitive advice. He is the oldest among the group and plays the “you’re too young to know card” a bit, much to the chagrin of his younger colleagues. He expresses some rosy instincts about the oil market but acknowledges the likelihood that the future is uncertain and, no matter what, price cycles will continue. He acknowledges that there might be a temporary reduction of the political pressure to open up the fuel markets and to develop alternative fuels because of present relatively low prices. However, based on talking to his muses — both liberals and free market conservatives — and reading the New York Times, he suggests that it might not be a bad idea to explore joining with the alternative fuel folks. Indeed, Hyde indicates that he favors adding alternative fuel production to the production menu of many oil companies. If this occurred, oil companies could hedge bets against future price gyrations and maybe even win back some public support in the process. The industry also might be able to articulate their overblown claim that the “drill, baby, drill” mantra will make the U.S. oil independent. (At this point, the background music in the room becomes quite romantic, and angelic figures appear!) Hyde doubt that going after global market share would bring significant or major early rewards because of current regulations concerning exports and may interfere with the health of the industry in the future as well as get in the way of the country’s still-evolving foreign policy objectives.

Tough sell, however! Contrary to Hyde’s desires, Jekyll carries the day and “kill the bastards” (assumedly the Saudis) becomes the marching orders or mantra. Let’s go get ‘em. Market share belongs to America. Let’s go see our favorite congressperson. We helped him or her get elected; now is the time for him or her to help us eliminate export barriers. A U.S. flag emerges in the future novel. Everyone stands. The oil groupies are in tears. Everybody is emotional. Even Hyde breaks down and, unabashedly, cries.

David and Goliath: Israel has also become a lead or almost lead character in many potential novels on oil. According to its story line, because of Israel’s need for certainty concerning U.S. defense commitments, it has convinced the “best in the west” to avoid a significant reduction in drilling for and the production of oil. Israel advises the U.S. to extend its security-related oil reserves! Glut and surplus are undefined terms. Compete with the Saudis. Drive the price of oil lower and weaken your and our enemies, particularly Iran and Russia. The U.S. should play a new and more intense oil market role. For some, an alliance among U.S.-Israel and other western nations to keep oil and gas prices low is not unimaginable and, indeed, seems quite possible. What better way to anesthetize Iran and Russia? Better than war! An Iran and a Russia unable to unload their oil at what it believes are prices sufficient to support their national budgets would be weakened nations, unable to sustain themselves and meet assumed dual objectives: defense and butter. Finally, what more “peaceful” way to deal with Hezbollah and Hamas, to some extent, than to cut off Iran’s ability to lend them support?

Each of the future novels summarized above clearly suggests some reality driven by what we know. But overall, each one has a multitude of equally intuitive critics with different facts, hypotheses, intuition and instincts. As indicated earlier, it is too bad we cannot generate better more stable analyses and predictions. For now, however, just realize how complex it is to rest policy as well as behavior on, many times, faulty projections and intuition or instinct. Borrowing a quote by the noted comic and philosopher, George Carlin, “tell people there’s an invisible man in the sky who created the universe, and the vast majority will believe you. Tell them the paint is wet, and they have to touch it to be sure.” Similarly, restating but changing and adding words, a quote from the Leonard Bernstein of science, Carl Sagan, that the nuclear arms race (if it does occurs in the Middle East) will be like many “sworn enemies waist-deep in gasoline,” the majority with many matches and one or two with only a few matches.

Novels and Alternative Fuels:

Where does this all leave us with respect to alternative fuels and open fuel markets? Too many producers and their think tank friends believe that low oil and gas prices will reduce the likelihood that alternative fuels will become a real challenge to them in the near future. They, instinctively, opine that investors, without patient money, will not risk funding the development of alternative fuels because prices of oil and gas are so low. Further, their “house” economists argue that consumers will be less prone to switch from gasoline to alternative replacement fuels in light of small or non-existent price differentials between the two.

The truth is that we just don’t know yet how the market for alternative fuels and its potential investors will respond in the short term to the oil and gas price crash. Similarly, we don’t know how long relatively low prices at the pump will last. We do know that necessity has been and, indeed, is now the mother (or father) of some very important U.S. innovations and investor cash. In this context, it is conceivable that some among the oil industry may well add alternative fuels to their portfolio to mute boom, almost boom and almost bust or bust periods that have affected the industry from time immemorial. Put another way, protecting the bottom line and sustaining predictable growth may well, in the future, mean investing in alternative fuels.

Low gas prices presently will likely be followed by higher prices. This is not a projection. History tells us this: importantly, lower gas prices now may well build a passionate coalition of consumers ready to, figuratively, march, if gas prices begin to significantly trend upward. The extra money available to consumers because “filling ‘er up” costs much less now, could well become part of household, political DNA. Keeping fuel prices in line for most consumers, long term, will require competition from alternative fuels — electricity, natural gas, natural gas-based ethanol, methanol, bio fuels, etc. Finally, while our better community-based selves may be dulled now by lower gas prices, most Americans will probably accept a better fuel mousetrap than gasoline because of their commitment to the long-term health and welfare of the nation. But the costs must be competitive with gasoline, and the benefits must be real concerning GHG reduction, an enhanced environment and less oil imports. My intuition and instincts (combined with numerous studies) tell me they will be! Happy Holidays!

Gal Luft: Oil’s monopoly a more important issue than prices

Gal Luft, an advisor to Fuel Freedom’s board, doesn’t know if or when oil prices might start rising again. For all the predictions out there lately, few experts can say for certain what the market will do in 2015.

“I started working on this when oil was $20 a barrel,” he says, referring to an era roughly between the mid-1980s and late ’90s when oil was at that threshold or even below it.

Gal-Luft“I don’t think that we should aim to bring the price of oil to any specific place, because sometimes the price will be high, and sometimes the price will be low,” he adds. “That’s what commodities do: They fluctuate. It’s true for oil, it’s true for cocoa, it’s true for soybeans.

“And I think the question is not, ‘How high is oil or how low it is.’ The question is, ‘Why is oil the only commodity in the transportation sector?’ … The issue should not be to look for a sweet spot for oil or a certain target price for it, but to talk about the lack of competition and the lack of choices and the need to diversify our sources of supply in the currently monopolized market.”

Luft is an expert on international energy issues. He’s co-director of the Institute for the Analysis of Global Security and senior adviser to the United States Energy Security Council, and he writes frequently about such issues.

His latest opinion piece, published this week on the Journal of Energy Security website, is titled “Don’t Get Used to Cheap Oil.” He expresses concern that the “growing exuberance” brought about by plunging oil prices could “diminish public appetite” for energy policies that would reduce the nation’s dependence on oil as a transportation fuel.

There are so many potential factors in oil’s sudden drop — 45 percent over the last six months — that it could easily rise again.

Luft writes:

Just like a combination of circumstances – a stronger dollar, increased supply from the U.S. and Libya, and tapering demand in the developed world – have brought to the recent price drop, a different set of drivers can lead to the exact opposite outcome. A cut in OPEC production, trouble in one or more major oil exporting countries, or a slowdown in North American production due to lower prices could reverse the recent trend, sending oil prices back to the three digit level. Predicting future prices is a loser’s game but even optimists would concur that any one of these three scenarios has a good chance of materializing in the foreseeable future.

To protect ourselves against wild price swings, consumers need alternatives to gasoline as a transportation fuel.

This way, if oil returns to unfriendly territory consumers will be able to shift to cheaper fuels and hence drag the price back to equilibrium. … The abundance of choice enabling vehicles would give rise to choice in fuels and this would be the only possible insurance policy Washington can provide the American people for the next time the oil market flips.

OPEC: Oil demand next year will be lowest in a decade

OPEC cut its forecast for global demand Wednesday, expecting that demand in 2015 will be at the lowest level since 2004.

Reuters reports that the cartel, in its monthly report, said it expects worldwide demand for its oil to be 28.92 million barrels per day, about 1 million bpd less than the 12-nation group is producing now.

Last month OPEC’s decision to keep output the same — about 30 million bpd — sent prices falling even more precipitously. Brent crude is down about 40 percent overall since June, when it was about $110 a barrel.

If the cartel produces 28.92 bpd next year, that’ll be its lowest output since it produced 28.15 million bpd in 2004.

Saudi Arabia, the cartel’s largest producer, gave no sign it’s willing to cut production levels to try to prop up the price. As Bloomberg reports:

“Why should I cut production?” [Saudi oil minister] Ali Al-Naimi said in response to reporters’ questions today in Lima, where he’s attending United Nations climate talks. “This is a market and I’m selling in a market. Why should I cut?”

Oil falls again, bank says floor could be as low as $43

The price of Brent crude dropped $1.77 a barrel on Monday, to $67.30. Earlier in the day it had hit $66.77, its lowest mark since October 2009.

BBC News has coverage here, and CNBC here.

Traders reacted to a report from Morgan Stanley citing fears of a global oversupply. According to BBC:

Morgan Stanley predicted that Brent would average $70 a barrel in 2015, down $28 from a previous forecast, and be $88 a barrel in 2016.

The investment bank also said that oil prices could fall as low as $43 a barrel next year. Analyst Adam Longson said that markets risked becoming “unbalanced” unless the OPEC producers’ cartel decided to intervene.

The Economist: Benefit of cheap gas depends on ‘sheiks vs. shale’ tussle

Cheap gasoline provides an overall economic benefit, The Economist writes in an article titled “Sheikhs vs. shale.”

The price drop of some $40 since June (from above $110 to about $70) has shifted “some $1.3 trillion from producers to consumers. The typical American motorist, who spent $3,000 in 2013 at the pumps, might be $800 a year better off—equivalent to a 2% pay rise.”

But will oil stay cheap? That’s the big question. How long the economic benefit of depressed prices lasts depends on:

” … a continuing tussle between OPEC and the shale-drillers [in the United States]. Several members of the cartel want it to cut its output, in the hope of pushing the price back up again. But Saudi Arabia, in particular, seems mindful of the experience of the 1970s, when a big leap in the price prompted huge investments in new fields, leading to a decade-long glut. Instead, the Saudis seem to be pushing a different tactic: let the price fall and put high-cost producers out of business. That should soon crimp supply, causing prices to rise.”

In short, gasoline is cheap now. We need to ensure it stays cheap.

Read more at FuelFreedom.org and PUMPtheMovie.com.

(Photo credit: Dan Weinbaum, posted to Flickr.com)