U.S. gasoline prices this week dipped under $2.50 gal for the first time since late January. Americans are probably spending about $930-million for their motor fuel, down about $430-million from last year when regular unleaded gasoline fetched more than $3.64 gal.
Despite the hype, and intense intraday and intraweek volatility, it was anything but a summer of sizzle. With one more quarter to go in 2009, I thought I’d take a shot in this post and forecast the most likely path for petroleum prices during the rest of 2009.
I recently predicted that the Giants would spoil the Cowboy’s regular season stadium debut, and was entirely accurate on that event, so I’m on a bit of a hot streak.
So, here are some of the questions that media should be asking as the days get shorter and the Christmas shopping season slides its ever overreaching backside into the beginning of the fourth quarter:
Q. Have supply & demand fundamentals been the major story for energy prices in 2009?
A. Through the first 270 days of the year, price variances have less to do with fundamentals and more to do with sentiment, crowd behavior, and portfolio adjustments by individuals managing billions of dollars of cash. Here in the U.S., we’ve made the transition from what was essentially a huge crude oil glut in the first and second quarters, to a substantial finished products’ surplus in the third quarter.
Meanwhile, the hyperactive natural gas futures market is the poster child for what moves energy markets these days.
In the last six weeks, despite not so much as a tropical storm in the Gulf of Mexico, the price of natural gas has more than doubled. Did everyone in the United States suddenly decide to install a pizza-oven in their home? No, the commodity had simply been oversold and it spiked higher thanks to panic short covering.
Local note: if you have seen any of the commercials for our N.J. gubernatorial race, you might conclude that the republican candidate (Chris Christie) might update a Herbert Hoover slogan and promise a “pizza oven in every household” much the way Mr. Hoover pledged a chicken in every pot. He is larger than President William Howard Taft.
Interestingly, our incumbent Governor, ex-Goldman Sachs’ exec Jon Corzine, marches to a political tune much like President Taft in that he has prominent facial hair. President Taft was the last president to have facial hair while in office.
Q. Where do you see gasoline prices heading through the remainder of 2009?
A. On a short term basis, they are clearly headed lower, particularly in some high priced states such as California, Alaska, Hawaii, New York, and Connecticut. There is enough current momentum to drive nationwide retail prices toward a $2.30-$2.40 gal range, perhaps by Columbus Day.
Prices do typically find a seasonal bottom in November, December, or January, and I suspect that bottom will be somewhere between $2.20-$2.30 gal.
But there’s an interesting caveat: within another 45 days, we will see 2009 street prices that are higher than the pump prices on the same days in 2008. That says much about the severity of the 2008 decline which was indeed unprecedented. Street prices dropped from $3.62 gal on October 1, 2008 to $2.18 gal by November 13.
Q. Goldman Sachs has predicted $85 bbl crude by year’s end. Deutsche Bank has a $75 bbl prediction. The two banks are on different pages for 2010 with Goldman predicting $95 bbl and Deutsche Bank prognosticating $55 bbl. What do you think?
A. I think both banks will have their moment in the sun in 2010 and that both extremes - - $55 bbl and $95 bbl - - are quite possible. I also believe that what used to be a “fear premium” for crude has largely been replaced by a “hope premium”.
Somewhere between $12 bbl and $20 bbl of the current price structure represents money managers’ hopes that the economy will see a robust recovery.
I believe that Goldman Sachs probably recognizes that the premium has some staying power. But I also believe that their view is skewed by the interpretation from very smart people in the ivory towers of New York and London. When you get on the ground, it’s difficult to find any catalyst for a surge in stateside demand. Gasoline season is over, and unemployment should keep U.S. demand under 9-million barrels per day most weeks between now and Christmas. Diesel and jet fuel demand are still miserably below peak levels of 2007. Perhaps the rest of the world will recover first - - but perhaps we have a case where investment bankers errantly predict what they want to happen.
Commercial interruption: Whether one resides in an ivory tower, or on the macadam of a retail station or petroleum terminal, one should listen to other experts in order to come up with a cohesive world view of global petroleum markets. The 11th Annual OPIS National Supply Summit, October 18-20 at Loews Lake Las Vegas Resort will sport some of the truly top minds in oil trading, refining, and downstream marketing. For details visit the link at http://www.opisnet.com/supply/
Q. Why were West Coast gasoline prices so much higher than other regions in recent weeks?
A. California refiners had some production struggles in August and early September, and more recently, a couple of fires knocked out some operations. The good news for consumers is that wholesale prices are about 50cts gal below their late Summer peak, and that means $3.00 gal or higher street prices will last about as long as the rest of the baseball season for the San Diego Padres. The bad news is that California specifications will get a bit tougher when the year ends and the state switches to an extremely low sulfur gasoline blendstock to which a 10% ethanol mixture will be added. There is no truth to the rumor that Aqua Velva will be a mandatory additive in the fuel mix by 2012
Q. I hear a lot about gasoline coming to the U.S. from other countries. Is that true and will it continue?
A. It is true. The United States doesn’t have particularly high retail fuel prices when compared to other countries, but that’s a reflection of the impossibility of raising excise taxes on a federal or state level. Among industrialized countries, the United States tends to have the highest wholesale gasoline prices in the world.
Trivia question: During June, over 30 countries sent gasoline or gasoline components to United States ports where it eventually became finished gas that was sold to the public. Only one of the following countries did not send gasoline stateside in June - - can you guess which one it was? Candidates - - Brazil, Ecuador, Peru, Belarus, Latvia, Libya, Lithuania, Nigeria, Japan, South Korea, or Taiwan? (scroll to the bottom of the blog for the answer)
Q. Mackenzie Phillips recently admitted that she was “high” when she appeared on the Today Show. You have appeared on that show as well as numerous other morning programs. Were you ever high for your Pump Daddy spots?
A. No, I was clean and sober, save for a bit of bloating due to some bad Fiber-con. However, there are some unsavory aspects that I recall from my last appearance on Today, and I am cataloging them for my eventual “tell-all” book.
For example, Al Roker mentioned ecstasy, although I subsequently found out that he was referring to a particularly tasty link sausage that was available in the green room. Matt Lauer had a suspicious delivery from a Canadian pharmacy, but I’m told it was for a discount Canadian version of Rogaine.
Q. OPEC holds its 155th extraordinary meeting on December 22, 2009. Under what circumstances do you suppose the oil ministers will meet?
A. This will be an interesting meeting. First of all, they are not convening in the default city of Vienna, where most of the conclaves take place. They will meet in Luanda, Angola where some of the local delicacies include bush meat and as far as I know, there is no opera house.
Which is to say, this will be a non-ceremonial meeting where oil ministers may really get down to business. They will have to deal with global demand for crude that is at least 500,000 b/d below the actual production levels within the cartel. The listed quotas are meaningless if the numbers are not enforced. It could be yet another turning point for 21st century oil markets.
If you haven’t paid much attention to Angola, you should do a bit of research. You might be surprised to hear that the southeast African country encompasses a geographic area nearly twice the size of Texas, although all the flat TV screens in the country probably would not have as many pixels as the Cowboy Stadium super-screen in Irving, Texas.
The country will soon be capable of exporting 2-million barrels per day of crude, and should surpass Nigeria as home to the greatest African oil wealth. Any day now, I expect to begin receiving unsolicited emails asking for wire funds transfer into Angolan banks.
Answer to gasoline import trivia question: Japan. All of the other countries provided finished gasoline or components in June 2009, according to the Energy Information Administration.