Crude Prices Should Hang Around $50 While Gasoline Prices Likely to Rise

The May WTI crude oil price is up 35 cents to $50.33 a barrel as of the close Friday. On the US West Coast the wholesale spot market price for gasoline and diesel went up 2 cents per gallon in concert with crude oil.

It's another day - same old story in the petroleum markets.

First - The US Federal Reserve announced a 1.5% month on month decline in industrial production and capacity yesterday. Crude oil prices reacted by going up Friday morning in reaction to that bad news.

Second - The week before last, the International Energy Agency, headquartered in Paris, lowered its forecast for global oil demand for this year by 1 million barrels a day down to 83.4 million barrels, which is 2.4 million barrels a day below the 2008 level.

Third - US crude oil inventory levels are now at a 20-year high and refineries are running at just 75% of their current capacity. Fuel conservation has forced the oil companies to reevaluate their 2009 game plan in view of the uncertainties in our economy.

Fourth - Gasoline prices went up some more this past week. It's no wonder the average motorist cannot figure out what will be happening to fuel prices in the next month or for that matter the rest of the year. The US average price for gasoline is hovering around $2.05 per gallon today per the AAA 'fuel gauge report'. The price on the West Coast is still around $2.32 per gallon.

My prediction is that crude oil will continue to hover around the $50 per barrel mark when at the same time gasoline and diesel prices will be increasing steadily upward. On the West Coast the average price for gasoline will be at $2.50 per gallon by Memorial Day and reach for the $3 mark by mid-summer. Retail diesel prices will stay about 10 cents per gallon above gasoline prices. The remainder of the country will follow suit and the average price for gasoline will be $2.50 per gallon by mid-summer.

Refiners have been successful in putting their foot firmly on the hose to constrict the flow of fuel to the market. They have reduced utilization below capacity before their usual planned, maintenance-related springtime reductions. Some shut production down completely earlier this year in order to perform spring maintenance known as turn-a-rounds. The combination of planned and unplanned reductions put 2009 refinery use at its lowest level in the last four years.

The US petroleum industry understands one thing very well and that is that you have to continue to make a profit in order to stay in business. It's either that or going broke and then they will be out of a job.

Disclosure: The writer does not hold positions in any of the commodities or equities mentioned in the above article.

Comments

[abetterplace:]

Remember life's basic needs we all learned in school, "food,clothing and shelter". I think it's way past time to put "fuel"at the front of all these.
Now, here we are just a few months down the road from when all the oil companies were posting "insane" profits and they are worried about going broke. I don't think so. Fuel, in whatever form,
has to be the most critical human processed resource we have and the oil companies are in control of it. Second to no industry in the country, not even banks, to help guide us out of this economic
mess and ,while most sectors are fighting to keep their head above water, they are and can expand their profit margins to any number they want at the general economy's expense.
While I am at the head of the list against government control, this might be a good time to take a hard look at some tougher regulations concerning oil profits. We certainly have no control over crude prices and never will.

Apr 19 08:57 AM

[The Greates...:]

People who have no jobs are not buying any new cars, they have no money. They are also not driving, no money, hence no driving. This whole world melt down economically, is due to the excessive greed and manipulation in the commodities energy market and can not be allow to continue.
The 12-month moving total for January is the lowest traffic volume (2,916 billion miles) in any month since February 2004. Further, the 110 billion mile reduction in the 12-month moving total since January 2008 (3,026 billion), represents about a $16 billion reduction in fuel costs for American drivers, at an average fuel efficiency of 23 m.p.g., and an average fuel cost of $3 in 2008. And yet gas is on the rise.

Apr 19 09:43 AM

[The Greates...:]

This is not supply and demand, it is manipulation in the commodities market, call future buying, plenty of oil. If I tell you the sky is falling enough, somebody will eventually look up to see. We need to close all the loopholes in the commodities market.

Apr 19 09:45 AM

[The Greates...:]

Oil needs to go the way of the dinosaur, it is a relic fossil of the past. New alternative fuels and energy sources are becoming more readily and affordable everyday and will replace oil as our energy source if we are smart as a species.
Also, over the last 6 years the oil companies as a whole have made $476 billion in net profit. now that’s a lot of $$$. Greed and more greed!

Apr 19 09:49 AM

[Mad Hedge F...:]

That is the safe bet. Daniel Yergin of Cambridge Energy Partners says that crude prices will stay in a $40 to $60 range for the foreseeable future. The author of the Pulitzer Prize winning “The Prize”, the best business book I have ever read, believes the recent 26% rally in the stock market is what dragged crude up from $35 to $54. Another downdraft in stocks, or a realization that the recession will be longer than expected, could take crude back to $40 in a heartbeat. Inventories are at a 16 year high, with possibly 80 million barrels at sea, as demand has shrunk from 86 to 83.5 million barrels a day over the last two years. Spare capacity is now huge. Don’t expect to break out of this range until a recovering economy eats into these supplies, and inflation makes its inevitable return. Then all commodities will roar, not just crude.

Apr 19 11:17 AM

[Old Trader:]

I'd agree that in the short to intermediate term, oil will be "range bound" at around $35-$55/bbl. The jokers in the deck, as always, would be geopolitical and meteorlogical "surprises" (the annual hurricane season is just around the corner).

To abetterplace; I truly don't see how any sort of "excess profits" taxes on US oil companies are going to make things "better". Having said that, I recognize that such a stance is a politically popular one, so I tend to look overseas for my energy longs.

The oil market is a global one, so if the emerging markets, and the BRICs start to pull out of the current slump, look for upward pressure on oil. In China, for example, auto sales are on a tear. Additionally, the relative strength/weakness in the dollar will come into play again, as it did during the run-up in oil to $150/bbl.

Apr 19 12:36 PM

[ernmor:]

This week has 2 items I like, Oil and Gold. I f the stock indexes fade, the Gold could turn. It's getting oversold. I'm not a 'Gold Bug' it's like any other Commodity to me, but I have my ear to the wind and listen, then decide how I procede. Oil can move up, so many dumping on it, yet it is still hovers 48 to 52 or so. I'm on 'Red Alert' here.

Apr 19 12:44 PM

[ETF STER:]

Irrational Exuberance

Apr 19 12:57 PM

[Jimbo:]

Message for "Greatest Rip off": I would be delighted if it were possible for the U.S. to never import another single barrel of oil. Unfortunately, your buddies in the Congress do not want us to drill any more in U.S. territory. I would also love it if all our transportation fuel could be produced from algae who absorb carbon dioxide. But I fear both of us will be dead by the time a viable biofuels industry exists. Just remember this: taxes laid on corporations end up being paid by the consumer. Jimmy Carter tried to punish the oil companies with a windfall tax and it blew up on him.

Apr 19 04:03 PM

[Repsonsible...:]

Well now we will have Smart Grid , this is the same kind of NON SENSE they promised with Cold Fusion works in the Lab sometimes but doesnt transfer to REAL LIFE Applications ! OF Course now just coincidently there Bringing Back the Cold Fusion Idea under NEW names Like The Nuclear efffect. Its still the same IDEA, FREE CLEAN UNLIMITED ENERGY didnt work 20 years ago doubt they can make it work now , but hey it keep 1000s of scientists employed by mostly YOUT TAX Dollars The Only part of "Smart Grid " thats ready to roll is smart meters they'll Roll them out in Miami this week to much hoopla they really wont Change ANYTHING but it will Make people FEEL GREEN , lol The rest of the Smart Grid technogy is still in various stages of developement , Kinda like GMs Volt At $50K a copy and a range of 40 miles on one 8 hour charge that will COST You depending were You live between $2.00 cents to $ 2.50 to charge it,, NO folks Electric cars arent FREE to operate Sorry folks. Once You used your 40 miles its back to good old gasoline , they havent said what kinda of gas mileage the Volt will get . Course You can Plug back in WAIT another 8 hours to continue driving on Battery power. Its All Part of the GREEN agaenda , Its All BS is what it is . 20 Years from now this country will still run 90% on Coal Fired Electrcity and 85% on Gasoline cars . By Then Golbal warming will be debunked again . But I'll bet some orgamzation still wants to save some snail somewhere , its what those kinda people do . !!

Apr 20 09:04 AM

[User 400625:]

Plain Retail Price Gouging - The pump price always seems to find a way up. When crude goes down, the price slowly glides down, when crude goes up, instant price hike at your pump? Today's price is inflated by maybe 30 to 50 cents as compared to crude prices. Look at the price low in my area of $1.33 when crude was $35. Now we're at $2.08 with crude at $48. The price of crude is up 37% and the pump is up about 56%? Take the 20% difference and we should only be paying $1.67. Even though prices are much lower, relative to last year, the consumer is still paying to much. The proof will come in the quarterly reports of the big oil companies. Profits won't be nearly as large as when they and the commodities markets were allowed to hijack america last year. The profits will be substainial given the current economic crisis. When does the regular guy come out on the good end?

Apr 23 10:06 AM