Oil price drop could pave way to $89

Jobs Tuesday

It is jobs Tuesday, but will the oil market (NYMEX:CLX13) care? Not only will this data be viewed as outdated and subject to revision, oil, as I have said before, is disconnecting from the day to day risk-off and risk-on scenarios. Oh sure, the general feel on the outlook of the economy will always influence the price of oil. Economic figures, like the jobs report, are an indicator that oil traders will look to try to gage demand. Yet oil is finding its own way as geopolitical risk premium is coming out and supply continues to rise. Unless you get a shockingly good or bad number, the market may only give it passing credence.

The other factor is supply and the spread between the Brent and Wit spread that is back above $10. Labor troubles and seasonal maintenance as well as the slow return of Libyan and Nigerian oil are helping the spread. The Energy Information Administration also played a part by reporting that U.S. oil supply increased by almost 4 million barrels last week. On top of that, U.S. exports of products continue to be at records. The heating oil rob spread came back in as weather forecasts started to moderate. As for WTI, the breach of $100 and the close below the 120-day moving average opens up a move back toward $89.00. Look to sell rallies and buy puts and bearish option strategies.

Natural gas should be getting more support from environmentalists. Instead of bashing fracking, they should also talk about how the increase in the use of natural gas is causing a major reduction in our country’s greenhouse gas emissions.

The Energy Information Administration (EIA) reports that last year carbon dioxide emissions were at their lowest level since 1994. That is a whopping 12% lower that the peak in 2007 when we hit “peak” natural gas. That comes even as our GDP increased by 2.8%, our energy consumption decreased by 2.4% as we became more fuel efficient and changed our energy mix. The EIA goes on to say that the emissions decline was the largest in a year with positive economic growth.

The EIA says that half of the overall energy decline was from the residential sector (1,213 trillion Btu or 5.7 %), where a very warm first quarter of the year lowered energy demand and emissions. And that the residential sector electricity consumption was lower in 2012 as compared to 2011 and this also helped to lower emissions as electricity-related emissions have been the principle source of residential sector emissions since 1965.

The U .S. energy-related carbon dioxide emissions have declined in all but one year since 2007. However, if the trends in drivers from the previous decade remained the same, emissions would have been over 900 million metric tons of carbon dioxide (MMTCO2) higher. From 1997 to 2007 per capita output grew at an average rate of 2.0 % but from 2007 to 2012 per capita output was flat and as a result emissions were about 563 MMTCO2 lower.

The EIA says that the next largest contributor to the decline was total carbon intensity that declined only 0.1 % from 1997 to 2007, but declined 1.3 % annually from 2007 to 2012 and reduced emissions by about 384 MMTCO2. he carbon intensity of the electricity produced fell by 13 % from 2007 to 2012. Emissions would have been about 314 MMTCO2 higher if the carbon intensity of the electricity supply had not declined and this accounts for most of the 384 MMTCO2 reduction accounted for by carbon intensity mentioned above. Of this reduction about 198 MMTCO2 is due mainly to the shift from coal to natural gas! The remainder (116 MMTCO2) is largely the result of a 9% increase in non-carbon generation (renewable and nuclear).

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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