Tuesday, August 21, 2012

US: Higher Gas Prices with Plenty of Energy Supplies

Oil prices are on the upswing in the U.S. again. National average for a gallon of gas has increased by 34 cents since July 1. Factors that attributed to the spike include anticipation of more stimulus aid to Western and Chinese economies, uncertainty over the status of the Strait of Hormuz as a result of tightening sanctions against Iran and its threat to close the globally important waterway, high driving season that summer tends to be, production disruptions in South Sudan and North Sea as well as a few refinery outages in the U.S. Some observers predict the price of gasoline would ease after Labor Day, which might just happen without releasing oil from the U.S. Strategic Petroleum Reserve.

In fact, there is no shortage of oil in the U.S. right now and, if anything, oil production and refining have been on aggressive rise. What seems to matter to understanding the vagaries of oil prices is not necessarily the scarcity of domestic oil supplies, but global market reactions to geopolitical events and sudden changes in physical factors, such as refinery shutdowns. In fact, recent developments in the U.S. refining sector should give signs optimism about supplies of refined oil products available in the country. U.S. could benefit more from it once prices of various domestic crude benchmarks narrow (e.g. Louisiana Light Sweet, West Texas Intermediate, and Bakken); if its capability to refine both heavy sour (Canadian imports) and sweet crudes (from domestic shale formations) improve; and if more supplies become available to the East Coast.  All three factors appear to have positive indications. It is worth noting that the Atlantic region has faced a price spike at various times due to limited refining capability on the East Coast and relying more on imports of sweet crudes from abroad.

In recent years, availability of copious supplies of oil and gas in the U.S. boosted its refining industry, which has been increasingly willing to “improve value through share buybacks and dividends” and investments in upgrading a lot of its coking capacity to profit from processing heavier crudes. It is likely that easing of prices for refined oil products, including gasoline, may maintain for a few years in the U.S., aided by a recent reversal of the Seaway pipeline from Cushing, Oklahoma, to Texas and with weakening of Louisiana Light Sweet and Brent crude benchmarks, which have traditionally been linked to refined oil products. In the end, the level of domestic oil supply alone cannot be the answer to price fluctuations, but it can be found more in exogenous factors such as weather, a geopolitical crisis or war, shifts in global oil demand and supply, natural disaster, or unexpected production or refinery shutdowns here or abroad as a result of these.

1 comment:

  1. Energy Market is largest trading industry..Due to increasing demand of power,energy prices are goes on increasing day by day..This blog provides great information on USA Oil and Gas industry, its market outlook,Demand and Forecast..very informative research report