Energy outlook muddled by government shutdown

The government shuts down and the outlook for energy just got a little murky. While transportation is not directly impacted by the government shutdown, a prolonged stalemate could slow the economy and U.S. oil (NYMEX:CLX13) demand. Oil demand in the U.S. is relatively weak already and with the absence of strong economic growth, it should trend lower. Not to mention more than 800,000 government workers are not going to work. In the meantime it is political theatre at its most imbecilic. I would say that our government is the biggest joke in the world, but I can't. Thanks Italy! Sit back and enjoy!

Also enjoy lower gas prices! AAA says that gas prices could fall by 30 cents by Christmas, which would be the lowest price since 2011. That is the same group that said that $3.00 a gallon gas has gone the way of the eight track tape. Yet if gas does fall by 30 cents a gallon by Christmas, then many parts of the country will be paying under $3 a gallon. Which might mean the eight track tape could be making a comeback!

Bloomberg news reported that "Prices may drop 25 cents to 30 cents by Dec. 25," Michael Green, a spokesman in Washington for AAA, said in a telephone interview Sept. 27. The U.S. is heading toward October with the lowest seasonal pump prices since 2010. The average cost for a gallon of regular gasoline was $3.399 yesterday, the lowest level since Jan. 29, according to AAA, the nation's largest motoring club.

A decline of 30 cents a gallon would save consumers an average of about $3.36 a week, or $174.72 a year, according to data from Michael Sivak of the University of Michigan's Transportation Research Institute. Cheaper gas prices could bring relief to drivers as the U.S. economy recovers from the worst slump since the 1930s. “Barring significant disruptions in supply or increased conflict in the Middle East that would drive up oil costs, however prices of oil should coast, there likely will be a number of states that average less than $3 a gallon by Christmas," Green said."

Wishful thinking? OPEC is predicting that U.S. oil production will decline because U.S. oil is not profitable under $70 a barrel. Abdalla Salem el-Badri, secretary general of the Organization of the Petroleum Exporting Countries says that U.S. production will fall after 2018 because the costs are too high. Yet the real question is can OPEC afford oil below $70 a barrel? And he may be missing the point! Not only will we be producing oil, but natural gas that we will export making $70 a barrel more tolerable. I think OPEC is still in a state of denial when it comes to the U.S. shale gas revolution.

Mario Parker of Bloomberg reports that ethanol's discount to gasoline narrowed for a fourth day as distillers waited for the corn harvest and gasoline declined with the possible shutdown of the U.S. government.  The spread, or price difference, narrowed 0.15 cent to 67.22 cents a gallon as the government estimated that stockpiles of corn, the primary component in U.S. ethanol, were down 17% from a year earlier as of Sept. 1. A Sept. 26 Energy Information Administration report showed inventories of the biofuel at the smallest in 12 weeks.

Stockpiles in the U.S., the world's biggest grower, totaled 824 million bushels, down from 989 million a year earlier and up from 661 million estimated earlier this month, the USDA said today in a report. Analysts in a Bloomberg News survey expected 694 million, on average. The USDA earlier this month predicted a record harvest of 13.843 billion bushels, 28% above last year and up from 13.763 billion forecast in August. The agency will update its projections for major crops on Oct. 11. One bushel of corn makes at least 2.75 gallons of ethanol. 

Renewable Identification Numbers slipped. The RINs are tracking certificates attached to each batch of biofuel that can be traded among refiners and later submitted to the Environmental Protection Agency. Corn-based RINs s lumped 3 cents to 42 cents, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, decreased 5 cents to 50 cents, data compiled by Bloomberg show.

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