MONEY Oil

What to Do When Oil Prices Sink (Again)

oil derrick
Alamy

An abundance of oil in storage and not enough demand from refineries could send oil prices plunging this spring.

After a steep drop late last year the price of oil has stabilized over the past month to right around $50 per barrel. However, that stability might not last long as there are signs on the horizon that the oil industry could be in for another leg down. That has some analysts suggesting that oil could hit $30 per barrel before rebounding later this year.

Growing concerns

In the International Energy Agency’s, or IEA, monthly report released this week it said it sees near-term trouble for oil prices. According to the Agency, its concern is that the U.S. might soon run out of spare storage capacity, which will put pressure on the price of oil this spring. The report noted that “on the face of it, the oil price appears to be stabilizing. What a precarious balance it is, however.” The report then went on to note, “[B]ehind the facade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly.”

Those aren’t exactly encouraging words for oil executives or energy investors. It’s leading to some dire short-term predictions for the oil price. For example, Goldman Sachs’ GOLDMAN SACHS GROUP INC. GS 2.27% president, Gary Cohn, said he thinks that crude could fall to as low as $30 per barrel this spring as storage capacity tightens up leaving fewer buyers of oil. It’s also not helping matters that demand for oil in the U.S. is lower in the spring as refineries switch over from producing home heating oil to summer blend gasoline. This leads to less demand for oil each spring, which could exacerbate this year’s oil glut with no other outlet for U.S. oil due to the export ban.

Longer-term gains

All that being said, there are also signs that once the U.S. gets past the spring glut it could see a sharp rally in the oil price later this year. That’s because U.S. oil producers have dramatically cut spending to drill new wells, suggesting that production should plateau and could even begin to decline by year end.

We’ve already seen this in North Dakota, which is the country’s second largest oil producing state. According to the state’s Department of Mineral Resources, oil production in the state peaked at a record high of 1.23 million barrels a day in December. However, in January, production slipped 3.3% to 1.19 million barrels as producers only completed 47 new wells to start the year compared with 183 well completions the month before. That trend toward lower well completions is expected to continue throughout the year as most producers in the state have cut spending by 50% or more as a result of the oil price plunge.

Meanwhile, global oil demand is now rising a bit faster than projections after failing to meet demand projections last year. The IEA raised its demand forecast for the second half of this year by 75,000 barrels per day bringing total projected global oil demand up to 93.5 million barrels per day for the year. This is as lower oil prices have helped spur demand for oil. In fact, even Europe saw its declining demand for oil rebound, as it was up 3.2% last December and up again by 0.9% in January.

This all suggests that the oil price could rally later this year as stronger than forecasted demand is met by a decline in supplies. Further, if OPEC does decide to trim its output at its June meeting it could hasten a rebound in the oil price.

Investor takeaway

The price of oil could be under a lot of pressure this spring as U.S. oil storage capacity fills up. However, the longer-term outlook is a bit more bullish as there are some signs that U.S. oil production is starting to slow its rapid growth with declining production in former growth darlings like North Dakota. That, combined with some recovery in demand could push oil prices meaningfully higher later this year. So, if you’re thinking about buying oil stocks, this spring could be the last great opportunity to buy near the bottom.

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MONEY Oil

3 Reasons Gas Prices Could Rocket Higher

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Scott Olson—Getty Images Members of the United Steelworkers Union and other supporting unions picket outside the BP refinery.

Unfortunately, the days of $2 gas appear to be in the rearview mirror.

Well, we had a nice run. After 123 straight days of falling gasoline prices, sending it below $2 a gallon in many states, we’ve come back to reality a little bit. In fact, gas prices have now risen each and every day for about a month. Unfortunately, gas prices could go a lot higher because of three storm clouds that appear to be on the horizon, which could combine to send gas prices rocketing higher.

Storm cloud No. 1: Rising oil prices

The dramatic drop in the price of oil in late 2014 caused gas prices to come down as well. We see this correlation in the following chart:

Brent Crude Oil Spot Price Chart

 

As we see there, the price of oil is down 45% over the past year, while the price of gasoline is down 32%. However, we can also see that both have bounced off of their bottoms from earlier this year. That’s because the price of oil has stabilized and is now starting to head higher as the oil market starts to see signs that it is working out some of its supply/demand imbalance issues.

Because those issues are being addressed, the oil market is now starting to point to a higher oil price later this year. That’s a recipe for higher gas prices, which is just what the U.S. Energy Information Administration is predicting, as we can see on the chart below.

Storm cloud No. 2: The big switch

One other thing you might have noticed from that above chart is that the price of gasoline is notably more lumpy than the price of oil. It’s something most of us notice at the pump each year as gas prices almost always rise in the spring. That’s because summer driving season is upon us, which leads to more demand for gasoline.

However, what really drives the price of gas up isn’t so much increased demand for gasoline in the summer, but the fact that oil refineries need to shift gears in the spring to focus on refining summer-blend fuels as opposed to winter-blend gasoline and home heating oil. Along with this switch, refiners also tend to undergo routine maintenance in the spring, which reduces their refining capacity. This adds up, and over the past few years on average, this has added $0.54 per gallon to the cost of gasoline each spring.

Storm cloud No.3: The picket line

This year, there’s a new wrinkle that could throw a wrench in the spring refinery maintenance season. The refining industry is currently at odds with the United Steelworkers union as the two have failed to reach an agreement on a new contract. As the dispute grows, workers at a dozen U.S. refineries have walked off the job, putting 19% of U.S. refining capacity at risk. The strike could continue to expand, as neither party is giving much ground on the disputed issues. This could lead to up to 63 refineries, which represent two-thirds of refining capacity, being affected by the strike.

So far, the strike has only resulted in one refinery in California being shut down, and that’s just because it was already undergoing maintenance, and its owner decided not to run the plant. However, shortly thereafter, an explosion at another California refinery took that facility offline, too, and cut the state’s refining capacity by 25%. This resulted in gas prices spiking in Los Angeles by $0.50 per gallon. This suggests that should the growing labor dispute lead to refineries across the nation shutting down, it could cause a big spike in what we pay at the pump.

Bottom line

Unfortunately, the days of $2 gas appear to be in the rearview mirror. Even without the rally in the oil price over the past few weeks, gas prices would have headed higher because of the normal spring switchover at refineries. However, this year, the price of gas could be under even more pressure to rise because of the possibility of a continued increase in the price of oil, and the possibility that the refinery strike causes a big portion of refining capacity to be taken offline.

I know that’s not the greatest of news, but if gas prices do spike, at least you’ll know why. And it’s a good reminder that instead of complaining about gas prices, an investment in the oil industry could offset some of the extra costs we’ll be paying at the pump and take away a bit of the sting of spiking prices.

MONEY Gas

Where Gas Prices Shot Up Nearly $1 Per Gallon in One Month

A cyclist rides by a sign at a gas station in Los Angeles posting the latest gas prices on Friday, Feb. 27, 2015. Gas prices in California soared overnight as a result of a combination of supply-and-demand factors worsened by the shutdown of two refineries that produce a combined 16 percent of the state’s gasoline.
Nick Ut—AP A cyclist rides by a sign at a gas station in Los Angeles posting the latest gas prices on Friday, Feb. 27, 2015.

Everyone is paying more at the pump lately. But California drivers have seen gas prices soar at an unbelievably fast pace.

In mid-January 2015, the national average for regular gasoline was $2.03 per gallon, and there seemed to be a strong possibility that gas stations would average under $2 nationally within weeks, or even days. Instead, that period marked what appears to be the bottoming out of the cheap gas era. After four months of consistently plummeting fuel costs, drivers began seeing gas prices inch up steadily—and then spike very recently.

Over the past week, the national average has crept up 2¢ daily, from $2.33 to $2.47 as of Monday, according to the U.S. Energy Information Administration. AAA data indicates that gas prices have risen 35 days in a row, for a total rise of 39¢ nationally.

While all drivers are paying more for gas than they did in the very recent past—more than a dozen states were averaging under $2 per gallon a month ago, but none are today—California has experienced an extraordinarily fast hike in prices at the pump. Apparently, an explosion at one oil refinery in the state brought about enough of a decrease in supply to send gas prices skyrocketing.

As of Tuesday, the average in California for a gallon of regular was $3.41, a rise of 96¢ over the past month and 43¢ during the last week alone. Nationally, gas prices are averaging a full $1 less than they were one year ago, even after the recent pricing surge. But in California, prices are only 45¢ cheaper than they were exactly 12 months ago, when the average was $3.86.

All signs indicate that drivers in California and all over the country will continue to be hit with rising gas prices. GasBuddy analysts forecast that prices will increase steadily during the next six to eight weeks, and AAA is predicting, “the national average price of gas could rise by 20 cents per gallon or more in March” alone.

Still, to put things in perspective, let’s not forget that gas prices averaged well over $3 nationally for entire years, and it seemed like a very big deal when the average dipped under $3 last fall.

“The good news is that most U.S. drivers should still pay less than $3 per gallon to fill up their cars this year,” AAA spokesperson Avery Ash said this week.

Not if you’re in California though.

MONEY Gas

Here’s What Americans Are Doing With the Gas Money They’re Saving

Gas nozzle and money
Tim McCaig—Getty Images

The government's Energy Information Administration estimates the average household will spend $750 less on gas this year. So where's that money going?

Americans are enjoying a nice raise at the moment, in the form of dramatically lower gas prices. The government’s Energy Information Administration estimates that the average household will spend $750 less on gas this year, which is like getting a roughly $1,000 raise, since the savings aren’t taxed. For a little perspective, the 2008 economic stimulus package passed by Congress designed to save America from the worst of the recession sent a maximum of $600 to American households.

The gas price drop means even more to struggling lower-income earners: the bottom fifth of earners spend 13% of their income on gas.

That’s the good news. The bad news? Retailers aren’t seeing much, if any, of that money.

Americans spent $6.7 billion less on gas in January than November, but retail spending actually fell slightly during that span. That means lower gas prices are not acting as a surprise stimulus plan for the economy.

So where is the money going? To the bank.

The Federal Reserve Bank of St. Louis recently reported that Americans’ notoriously low personal savings rate spiked in December, to 4.9%, from 4.3% the previous month. The cash that’s not going into the gas tank is going into savings and checking accounts instead.

Few Americans save enough money, and many have insufficient rainy-day funds. With the recession fresh in their minds, many Americans appear to be more concerned with restoring their severely damaged net worth than buying stuff.

But Logan Mohtashami, a market observer and mortgage analyst, suspects something else might be at play.

“People don’t think the gas price (drop) is a long-term reality,” Mohtashami said. Despite government predictions to the contrary, he says, consumers aren’t adjusting their spending to a new normal, and instead they’re holding onto their cash for the next rise in prices.

Again, that kind of pessimism is sensible, and it’s good for personal bank accounts, but it’s not so good for growing the economy.

How much are you saving thanks to lower gas prices? What are you doing with the “raise?” saving or paying down debt? Planning a better vacation? Driving a gas-guzzler more often? Let me know in the comments, or email me at bob@credit.com.

More from Credit.com

This article originally appeared on Credit.com.

MONEY Gas

Gas Prices Rise for the First Time in 4 Months

That incredible drop in the cost of filling up your car has taken a very small break.

TIME market

Stocks Plunge as Oil Prices Drop Below $50 Per Barrel

Energy stocks have been hit hard by falling oil prices, and they are leading a broader market sell-off

U.S. stocks have opened the first full week of 2015 with a steep decline, with the Dow Jones industrial average dropping 331 points, as falling oil prices weighed on the energy sector.

Oil prices continued their months-long decline Monday, with the price of crude briefly falling below $50 per barrel for the first time in more than five years earlier in the session on account of global oversupply. Concerns over the worldwide oil glut heightened in the past week as both Russia and Iraq posted record oil supplies. Energy companies have suffered as a result of the falling oil prices and industry stocks were hit hard again to start the week.

Chevron was recently down more than 4% in early trading — a drop that knocks roughly $8 billion off the energy giant’s market cap. Meanwhile, Exxon Mobil fell more than 3% this morning and BP dropped almost 6%. Oil field services company Halliburton has suffered as well and was also recently down nearly 3%.

The energy industry losses caused the broader U.S. market to slump, with the Dow Jones industrial average lately down more than 240 points, or about 1.4%. The blue-chip index has dropped about 17,600 points in almost two weeks after crossing the 18,000-point mark for the first time in history late last year.

The broader S&P 500 index was lately down 1.3%, while the Nasdaq composite fell about 1%. The Nasdaq is down a little more than 1% so far in 2015, while both the Dow Jones and the S&P 500 have dropped around 1.3% since the start of the year. All three indices finished 2014 on a fairly strong note, with the Dow Jones gaining 7.5% on the year, while the S&P 500 improved by almost 12% and the Nasdaq gained more than 13%.

Another potential factor in the day’s market drop was news of more troubles in Europe. The euro fell to its lowest level against the dollar in nine years Monday, driven by fears of political turmoil in Greece and hopes for more monetary stimulus from the European Central Bank.

Read more at Fortune.com

TIME Oil

U.S. Gas Prices Have Hit a 4-Year Low

You can thank booming crude output, falling demand and a strong greenback

The average price of a gallon of regular gasoline in the U.S. has dropped 12¢ over the past two weeks, reaching a four-year low, a national survey finds.

Lundberg Survey said Sunday that the average price of regular gasoline has reached $2.72 per gallon, the lowest price since November 2010, Reuters reports.

Lundberg in part attributed the dramatic falloff to a spike in crude-oil production in North America. The Organization of Petroleum Exporting Countries last month decided not to cut crude-oil production to contend with a U.S. shale-gas boom and falling oil prices.

Other factors include a slowdown in demand for gas and a strengthening of the U.S. dollar, Lundberg found.

The most expensive gas in the lower 48 states was in San Francisco, where it goes for $3.04 per gallon. The lowest price was in Albuquerque, N.M., where it’s $2.38 per gallon.

[Reuters]

MONEY stock market

3 Ways a Market Swoon Can Put Money in Your Pocket

Money in jeans pocket
Image Source—Getty Images

Though the stock market tumble has been scary, there are some upsides to all the bad news.

With the market down more than 7% in the last month, it’s easy to feel fearful for the parts of your life most immediately affected by a rocky financial world — like retirement savings and job security.

Certainly, there are plenty of good reasons to be cautious about the future, including high valuations and other signs the current bull market may be aging.

But a downtrodden market like this one can create pockets of opportunity for investors and consumers alike. Here are just a few ways you can benefit from the recent pullback.

1. Cheaper gas prices

Thanks to a supply glut and low demand, gasoline prices are hovering at less than $3 a gallon across the United States. And that’s despite international geopolitical unrest, which usually keeps oil expensive.

2. Low interest rates on mortgages

The Fed is keeping short-term rates low, and the sell-off has sent investors into Treasury bonds, driving down the yields that serve as a benchmark for borrowing costs throughout the economy. So mortgage rates have taken a big dip in the last month.

Interest on a 30-year fixed-rate mortgage is now 4.01%, which means that if you’re sitting on a much higher rate from buying a home a few years ago, now could be a very opportune moment to refinance. Though the paperwork might be intimidating, letting inertia get the best of you could mean leaving literally tens of thousands of dollars on the table.

3. Stock-buying opportunities

When the market takes a big dive, it can be a good moment to purchase stocks, especially if your goal is to buy and hold for the long term. This is particularly true for younger people who have time on their side, as they stand to lose very little in the short term (even if stocks continue to drop) and can gain much more when the market eventually recovers.

So if you are a millennial and have been putting off opening (or upping contributions to) that 401(k), now is your moment to choose a plan. And even Gen X-ers generally have enough years ahead to take on some risk in their retirement portfolios.

Finally, if you’re not a driver, homeowner, or investor, there’s always that trip to Paris you’ve been putting off: Thanks to economic uncertainty in Europe, the Euro is trading for less than $1.30—the cheapest it’s been since last summer.

TIME Autos

General Motors Is Getting Ready to Make a Huge Change

A General Motors Co. 2014 Chevrolet Cruze vehicle sits on the lot at a dealership in Southfield, Michigan, March 28, 2014.
Jeff Kowalsky—Bloomberg via Getty Images A General Motors Co. 2014 Chevrolet Cruze vehicle sits on the lot at a dealership in Southfield, Michigan, March 28, 2014.

The favored fuel of Europeans could be in 10% of US cars by 2020

fortunelogo-blue
This post is in partnership with Fortune, which offers the latest business and finance news. Read the article below originally published at Fortune.com.

By Ben Geier

The word “diesel” probably elicits one of three reactions from most Americans: A disgusted comment about black smoke, a curious glance that says they don’t know what diesel is, or a story about the time they accidentally put diesel in their engine and worried they’d ruined their car.

All that could be changing, though. Steve Kiefer, the General Motors’ vice president who oversees engine production, said in a speech Tuesday that he thinks 10% of the U.S. market could be made up of diesel cars by 2020, echoing past statements from GM executives.

As of right now, only one GM car, the Chevrolet Cruze, is available in the U.S. with a diesel engine. Some heavy-duty pickups are also available with diesel as an option. Several more could be coming in 2016, according to a report onAutomotive News. The Chevrolet Colorado and the GMC Canyon will be available with diesel engines in 2016.

The Chevrolet Cruze diesel will be the first of many diesel-powered passenger cars General Motors will offer in the United States, Kiefer said in his speech.

Lauren Fix, an automotive columnist who goes by the title “The Car Coach,” said she agrees, and that diesel’s image is changing stateside.

“Diesel today is about performance,” she said. “Its a great alternative to a hybrid, because what you lose with a hybrid is towing capacity.”

For the rest of the story, please go to Fortune.com.

 

MONEY Gas

Gas Prices Dropped 30 Out of 31 Days in July

140731_EM_GasPump_1
Getty Images

The national average for gas prices experienced the largest drop in July in six years, according to AAA

The direction that gas prices have been heading in during peak vacation and road trip season should put smiles on the face of American motorists.

As of July 31, the AAA Fuel Gauge Report listed the national average for a gallon of regular at $3.517, roughly 3¢ less than a week ago, 16¢ less than one month ago, and 11¢ less than prices at the pump at this time last year. What’s more, AAA announced that gas prices fell in 30 out of 31 days in July, helping to bring about the biggest decline in prices at the pump in July in six years.

This is the first time ever recorded that gas prices have fallen so consistently in July, which is a month when gas prices are generally prone to soar. The highest national average ever posted remains July 2008, when prices spiked to a panic-inducing $4.11.

“Falling gas prices are nearly the opposite to what we usually see this time of year,” said AAA spokesman Avery Ash. So what explains the decline? “Refineries are running at full tilt and there is more than enough gasoline in the market, which has helped bring down prices despite multiple overseas conflicts.”

And what can we expect going forward? Well, gas prices have dropped in August in three of the last five years. But prior performance is no indication of what’ll happen in the future—just look at gas prices recently, which have fallen during a time period when they have skyrocketed in the past.

Even so, the experts at AAA anticipate that gas prices will continue on a downward path in the days and weeks ahead, provided there are no major hurricanes, refinery problems, or unforeseen international conflicts—any of which could send fuel costs up and up. For now at least, the idea that gas prices peaked for 2014 in early spring is still holding up.

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