Natural gas gets cheaper as Exxon keeps drilling

Stupid is as stupid does and after Exxon Mobil, the world’s largest publicly traded oil company, reported a net income of $9.4 billion for the quarter, up from $9.25 billion the year before and revenues of $121.6 billion, up 16 % from the year before, T. Boone Pickens seemed to suggest that it was stupid. You see Pickens, according to The Associated Press, after his company, Clean Energy Fuels Corp., announced a deal with truck maker Navistar to make more vehicles that run on abundant fuel and build more fueling stations, which seemed to suggest that the only way to bolster U.S. natural gas prices and cut the market's massive oversupply is to stop drilling. Pickens said, "This country is so overwhelmed with natural gas that the only way to get prices up is to stop companies [from] drilling gas wells," Pickens said at a news conference to promote the Navistar deal, which advances his aim to break U.S. dependence on oil for transport. "Don't be afraid that this deal will be made and we will wake up in a year with natural gas prices three or four times higher," Pickens said.

Yet Exxon Mobil said it will keep producing, and why not? It is not only the largest producer in the U.S., but it also could be one of the only ones. Pickens may be worried that Exxon will grab market share and drive some smaller gas companies out of business and perhaps make some of his investments less profitable.

Still, if you want to build demand for natural gas-powered cars, the best way is to use cheap natural gas. It will create demand, and it may have to get a bit cheaper. In Chicago, we are seeing natural gas cabs. On a typical shift in a normal cab, the drivers pay on average $50-$55 to fill the tank. For the natural gas cabs, it's about $30-$35 equivalent. But the hybrid cabs are even cheaper, coming in at $25 or $30. We may need to see even lower prices to push the technology forward.

Oil did a slow fade as we expected. Refining issues have kept products elevated, yet the market big picture is heavy. The Energy Information Administration reported a very low refinery rate for this time of year. U.S. crude oil refinery inputs averaged 14.2 million barrels per day during the week ending January 27, 89,000 barrels per day below the previous week’s average. Refineries operated at 81.8 % of their operable capacity last week. Gasoline production decreased slightly last week, averaging 8.5 million barrels per day. Distillate fuel production increased last week, averaging 4.5 million barrels per day.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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