It appears that WTI/Brent spread has weakened to the extent that the arbitrage to bring North Sea crude to US Gulf coast has eroded somewhat. This and the fact that we are entering into the high gasoline demand season may just spur crude prices to edge up a little. Of course, we all can help a little by taking our motor homes, our SUV's and all other 'gasoline thirsty' toys and ... have a great real blast!!!. But, question is: If we all spend, say, an extra $1,000.- on fuel this summer, will we recover that much (or more) in appreciation of our energy stock holdings? I, for one, think not.
Driving those RV's and other gas guzzlers is really not impacting that much in near terms:- tanks are full worldwide with crude+products;- there is today +/- 1 to 1.5 million barrels crude too much coming into (an already overflowing)system;- only, and ONLY, a firm, co-ordinated real cut of anything over 1 million barrels/day crude supply is going to firm crude prices over $15/bl Brent;- also ,don't forget to look at other factors:* F.east/Asia demand scenario for transport fuels + petrochem feedstocks (naphta..!!);* competing energy values: LPG ( halved in price since end last year....)and much too much of it globally;* China import restrictions (anti-smuggling drive) + lower growth scenario for China: resulting in much lower export flows to that huge(fuel importing) bloc.Alltogether, supply/demand balances way out of line,favouring the buyers of crude,fuels,feedstocks,etc..
I just run accross a blurb published by FirstEnergy Capital stating that: Iran, despite agreeing to a cut 140,000 bbls/d of their production last time OPEC reached so called consensus (Riyadh agreement), they increased production by 185,000 bbls/d since. I guess oil prices will stay down for a while yet.
iF THE LAST TWO COMMENTS ARE CORRECT HOW COME OUR LOCAL GAS PRICE HAS JUMPED EIGHT CENTS PER GALLON IN THE LAST THREE DAYS. i'VE JUST RETURNRD FROM A 3000 MILE DRIVE AND THIS HAS BEEN TRUE OF EVERYWHERE i WENT OVER THE LAST TEN DAYS.
Pump (retail) prices have very little correlation with Brent/WTI crude prices, I am afraid.Most governments have fixed pump prices and gasoline is taxed heavily. For example here some gas prices:Holland: $1.10 p.liter = $4.18 p.gallonUAE (Dubai):$1.03 p.gallonI think in USA ( but correct me if i'm wrong) the gasoline prices are not regulated, so indeed there should be some correlation in US with crude pricing. I guess the supply/demand for gasoline in US has to be behind these increasing pump prices (summer driving season!?).On Iran increased production: don't forget Iran has over 60 million people and some of the cheapest gasoline prices in the world........so domestic demand growth (which is quite high) takes in incremental crude production. To really surprise you:Iran IMPORTS yearly for over $100 million worth of super unleaded gasoline, since the local refiners can't make enough of the stuff........!OPEC production numbers and quota always have to be analysed carefully before making conclusions.Another growing issue is that ,while OPEC and non-OPEC members may agree on crude production/export quota or cuts, the members are also big petroleum refiners + exporters. And global supply of products like naphta,fuel oil, gasoline, diesel is not OPEC regulated,so members can "cheat" by increasing their products export, subject of course they have the refinery capacity available to process the barrels.It's complicated.............
wouldn't there be some time delay b/c of futures contracts?
Hedge instruments , of which futures contracts are part, are mostly used by the players in the market to lock in margins on physical contracts. And of course they are used in a big way purely for "paper trading", i.e. the contract parties have never the intention to actually supply or take delivery of the goods. The interesting thing you could deduct from futures is perhaps the trend of the prices that the market players believe will happen.Just to give you indication of "paper trading":crude consumption globally per day is in order of 75 million barrels, but on the 2 crude exchanges ( IPE in London and MERC in NYork ) daily volume of crude contracts can easily reach total of 200 million barrels.
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