Many crude oil analysts have done a disservice to the average American that is more impactful to gasoline prices than the supply of crude. Take a year ago; we were in an era of low prices for eternity and that oil might never trade above $40 a barrel again--and that was was wrong.
Many have doubted OPEC’s resolve to cut production and talk about a glut of supply, but failed to talk about the bigger issue of underinvestment and geopolitical risks that are a threat to the economic recovery. The changing dynamic of oil and gasoline exports means that supply should be viewed in a global sense and that is why many missed the rise in oil and gas prices from a year ago. They have given drivers and business a false sense of security under estimating the impact the average American at the gas pump.
AAA confirmed a sharp rise in gas prices that we saw in the Lundeberg Survey, driving the average price for unleaded gasoline nationally that hit $2.38 per gallon in March, a 19-month high. Those prices are poised to move even higher as OPEC and non-OPEC cuts start to be felt and the realization that over the long-term, shale oil process cannot replace larger projects with slower decline rate. With rising geopolitical risks around the globe and a path to a tightening global oil market, the upside risks are rising.
Supply worries also matter. As I have said before, we cannot count on Libya to be a reliable supplier in the near term. Once again shutdown of Libya's Sharara oilfield just after it was brought back on line shows that the situation in the country is still not stable.
The situation in Syria has become more serious. Russia and Iran say they will respond to U.S. aggression. This comes as the Trump Administration is signaling that there may be more retaliation against Syria for a chemical weapons incident. German Chancellor Angela Merkel Is telling President Trump to work through the UN. Then there also is the whack job in North Korea. Reports that China is sending troops to the North Korean border is also raising the stakes for oil. The Daily Mail reported that China deployed 150,000 troops to deal with possible North Korean refugees over fears that President Trump may strike Kim Jong-un following the missile attack on Syria. They fear that Trump's Syria strike was interpreted as a warning to North Korea.
Bloomberg News reports that India’s oil consumption fell for a third straight month, with the use of bitumen and naphtha declining and diesel demand growth flat, amid the continuing effects of demonetization. Total fuel consumption fell 0.7% to 17.36 million tons in March, according to the Oil Ministry’s Petroleum Planning and Analysis Cell. That puts consumption during January-March about 3% lower than the same period last year as the economy slows under the impact of Prime Minister Narendra Modi’s decision in November to remove high-denomination currency notes from circulation.
The air is cleaner! The U.S. Energy Information Administration’s new Today in Energy brief looks at what’s behind the decline in U.S. energy-related carbon dioxide emissions during 2016. “U.S. energy-related carbon dioxide (CO2) emissions in 2016 totaled 5,170 million metric tons (MMmt), 1.7% below their 2015 levels, after dropping 2.7% between 2014 and 2015. These recent decreases are consistent with a decade-long trend, with energy-related CO2 emissions 14% below the 2005 level in 2016. As noted in a recent article on energy use, both oil and natural gas consumption were higher in 2016 than in 2015, while coal consumption was significantly lower. Consistent with changes in fuel consumption, energy-related CO2 emissions in 2016 from petroleum and natural gas increased 1.1% and 0.9%, respectively, while coal-related emissions decreased 8.6%.”