Gasoline sees calls for long-term top

The End is Nigh

China had subdued inflation but a warning from Fitch may raise concerns about China and growth once again. While subdued inflation means that China has the room to maneuver on stimulus if needed, it seems that Fitch is warning about negative action if China's growth slowdown raises unemployment and causes fiscal problems. There are growing concerns that China's mixed economy of controlled capitalism may be springing some leaks. While Fitch says that China's long term currency default rating outlook is stable, it seems that Fitch is worried that China's economy could turn south if we see renewed signs of stress.

At the same time stress on the geopolitical front may be playing into oil’s hands. Concerns in Nigeria about renewed violence and threats against Nigerian oil production seemed to give oil some underlying support. Oil defied a rise in the U.S. dollar and held up most of the day.

We are also feeling the threat from an unpredictable North Korea that may be getting ready to test a nuclear device. While the knee jerk reaction to the threat would be initially bullish, more than likely such a test would be a bearish event.

The Energy Information Administration reported that national average retail price of regular gasoline fell 3.7 cents a gallon to $3.608 a gallon. According to EIA data compiled by Dow Jones, the price of regular gasoline has fallen 17.6 cents, or 4.7%, in the past six weeks, to the lowest price since Feb. 4. Dow Jones points out that prior to the current declines, pump prices had gained 53 cents in the prior 10 weeks, in the longest string of increases since early July through mid-September 2012. Still prices are 33.1 cents below the year-earlier level. That's the biggest year-on-year price drop since Oct. 19, 2009. As recently as Feb. 18, retail gasoline was priced at 15.6 cents higher than the year-earlier level.

Still big picture the gas market despite the February run-up is still making a major top as U.S. oil production and competing fuels are changing the gasoline dynamic. Last summer I wrote that the era of High Gasoline prices were coming to an end. I wrote, "With the combination of new supplies of oil, an aging U.S. population and the permanent demand destruction we have seen means that baring a major disruption of global supply gas prices have put in what should be a historic peak. With weak economy, the move toward fuel efficiency and viable alternatives like natural gas on the horizon, the likelihood of a spike exceeding this year's high are becoming increasingly unlikely”.

Of course in February the spike in gas prices caused in part by Hurricane Sandy is one reason why those long term predictions are always susceptible to event risk, but I stand by prediction.

Yet last summer when I made that prediction it was met with some skepticism to say the least, yet others are now joining that call. Most notably Seth Kleinman, an oil analyst at Citigroup, who said that the substitution of natural gas for oil and increasing fuel economy means that oil demand is reaching a tipping point and that "The end is Nigh” for global oil demand growth. 

That brings me to my long term call for natural gas. Earlier this year I called for natural Gas to hit $7.00 by 2015. As you can tell by the recent rally in natural gas, we are well on our way. Nat gas hit another 20-month high before moderating temperatures and a short term overbought condition led to some small profit taking. Still Nat gas is holding up well as demand expectations for the first time in a few years seems to be outpacing production increases. With Natural gas rig counts at a 24-year low and demand rising, it is providing good long term support for this potential major bottom in this market.  BUY breaks!

Dr. Ernest Moniz is on the hot seat today and may be a great choice for Energy Secretary because he is getting heat from the left and right. From the Left the concerns of his ties and his funding from the oil and gas industry and his support for fracking and natural gas exports. His report as reported by "Truth Out” said  "The Future of Natural Gas” was a magnum opus that crowned natural gas as the "bridge to a low-carbon future.” It cited vast new supplies of cheap, clean-burning gas from shale drilling and recommended a switch from coal to natural gas in U.S. electric power generation, industry and transportation…. MIT's report touted shale gas as a huge economic opportunity and argued that switching to it for electric power generation in particular would help slow global warming.”

From the Right, "The Heritage Foundation disagrees with many of the policy recommendations Dr. Moniz has championed.” The U.S. should sustain North American energy market integration and support development of a global "liquid” natural gas market with diversity of supply. A corollary is that the U.S. should not erect barriers to natural gas imports or exports.

Interestingly enough, should Dr. Moniz head up the DOE, it will be his agency that is an enormous barrier to increasing liquefied natural gas (LNG) export opportunities in America. Section 3 of the Natural Gas Act of 1938 gives the DOE's Office of Fossil Energy (FE) a say in the decision to export natural gas. To export natural gas, a company must liquefy the gas at a liquefaction plant at –162 degrees Celsius. The LNG is then shipped from an export terminal and delivered to a re-gasification import terminal to be stored or distributed by pipeline at the recipient location. After a company files an application to export natural gas with the DOE, the agency must determine whether the project is in the public's interest. The DOE can deny a permit if the agency believes the total volume of natural gas exported is not in the public's interest.

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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