American "Consumers Held Captive" As WTI Crude Tops $75, Gas Prices Highest Since Nov '14

For the first time since Nov 2014, WTI Crude futures front-month contract has topped $75.

All of which means Trump better get back on the phone and ask for 3mm b/d from the Saudis as Americans are about to face a huge tax rise as gas prices at the pump are high and about to get higher...

As RBC analyst Michael Tran writes in a report today, "retail gasoline is pricing the highest in years, but demand remains relatively firm, " because consumers are "held captive to the type of vehicle owned."

This ensures that gasoline demand is less "price-elastic" than in previous comparable periods, but leaves the disposable income taking a bigger hit.

And as OilPrice.com's Robert Rapier notes, the irony of this huge rally is that it was sparked by the announcement by OPEC that it would increase production.

Oil prices had weakened over the past month following a call from President Trump for OPEC to increase production in response to rising oil prices. After rising above $70 per barrel in May, the price of West Texas Intermediate (WTI) had dropped back to $65/barrel leading up to OPEC’s June 22nd meeting.

It was widely anticipated that the group would decide to bump output at the meeting. At the meeting’s conclusion, OPEC, in agreement with Russia, announced that it would increase production for the first time since implementing production cuts in November 2016.

But WTI rallied by more than 4% following the announcement. Why? Because the market was underwhelmed by OPEC’s decision.

OPEC announced that it would restore about one million barrels per day to the market, beginning this month. Iran had opposed the move, partially in protest of sanctions from the Trump Administration. In reality, the output increase isn’t expected to exceed 700,000 barrels per day because some members are already pumping at maximum capacity.

Further, this output increase won’t be enough to balance the oil market. The most recent Oil Market Report (OMR) from the International Energy Agency (IEA) projected the amount of oil that would be needed by OPEC through 2019 in order to balance the markets:

(Click to enlarge)

By the end of this year, the call on OPEC is expected to be nearly 1.5 million BPD more than they were forecast to produce. Thus, even if OPEC managed to follow through on the full output increase, it would be insufficient to prevent further declines in global crude oil inventories. Expectations that this production increase won’t be enough to stabilize these inventory levels are the primary driver behind last week’s oil price surge.

Also bear in mind that Saudi Aramco is still planning its IPO. Saudi Arabia would like oil prices to remain elevated, while appeasing President Trump. OPEC’s action potentially satisfies President Trump’s request while ensuring that oil prices remain strong.

Oil prices surged again on news that the U.S. was pressuring its allies not to import oil from Iran, lest they risk sanctions. Iran currently exports 2.9 million barrels per day of crude oil and condensate to Asian and European markets. Even if there is modest compliance with this Trump Administration request, it could accelerate the depletion of global crude oil inventories. That would likely drive oil prices even higher.

That would also make U.S. oil producers happy. Refiners, on the other hand, would likely suffer. Higher oil prices erode the margins of refiners, resulting in lower profits. So even though refiners welcomed the news on biofuel mandates, the spike in oil prices will probably have a bigger negative impact on earnings in the short term.

Comments

silverer BaBaBouy Tue, 07/03/2018 - 10:04 Permalink

Actually, the US hasn't seen much in energy price action compared to the rest of the world. This entire thing called the US economy lives and dies on energy. So you'll really see some big changes when the US loses reserve currency status and/or the oil producers want to be paid in yuan. Third world here we come. Not Trump's fault, but he'll be blamed. It started with drug kingpin George Bush. No, George's big bucks do not come from oil. The really big bucks for the Bush family come from poppies.

In reply to by BaBaBouy

Mr. Ed GeorgeHayduke Tue, 07/03/2018 - 11:35 Permalink

Tell me how an OIL GUY got to be Secretary of State!  Oil is the very definition of manipulation and Tillerson had something to do with what is going on... "power outage (are you kidding me!!!??!) in Canada" knocks out huge supply (which they couldn't transport anyway, but the story got lots of news play), "militants in Nigeria" (what else?) - and yet full tankers in storage anchored all around Europe...

Nothing makes sense except that someone set this narrative up ahead of time and now the oil guys (from everywhere) are skinning the consumer alive.  F.U. Tillerson.  And F.U. Trump for appointing him!

Of course the plan is to have Trump "ride to the rescue" after all HIS buddies and TILLERSON's buddies have made gazillions on long crude futures contracts (volume of which is ~25 times physical!).

 

PS: is it plausible to believe that Tillerson stayed in his Sec'y of State position just long enough to git the job done and no longer?

In reply to by GeorgeHayduke

MuffDiver69 Tue, 07/03/2018 - 09:33 Permalink

One word....Venezuela. Plenty of Oil if they were even at half capacity. Really messed up you can read an article on Oil and this isn’t first on the list.

adr Tue, 07/03/2018 - 09:35 Permalink

Of course US consumers are held captive when gas prices now reflect $120 per barrel when the contract trades at $75.

$75 on the way down was $2 at the pump. $75 on the way up is $3.25.

Something is wrong there.

There was no decline in global inventory, how could there be? The entire period of the oil price mega bull run was met with production levels higher than the period that gave us the glut that dropped oil to $22.

The US was allowed to export millions of barrels that ended up off the books. China stored a few billion barrels, and all the while production increased.

This run was one of the greatest con jobs of all time. 

Expat adr Tue, 07/03/2018 - 10:38 Permalink

you don't have a clue.  Care to show me global storage statistics to back up your paranoid delusions? 

OPEC cut significantly in addition to the outages in Libya, Brazil, Venezuela and Nigeria.

US exports millions of barrels they don't want.  The US is a major exporter of distillates and an importer of gasoline.

I know oil and economics are hard, and that this crowd prefers your brand of bullshit, but you are simply full of shit.

In reply to by adr

Expat adr Tue, 07/03/2018 - 10:52 Permalink

LOL.  I can make things up as well.  Last time a Trumpturd got a fact straight was in 1997.  Since then, despite Trump being elected, Trumpturds are more wrong than ever.

The last time the pump price was $2 a gallon was in 2005 (at least on a yearly average).  Oil was $50 a barrel.  That means Brent was about $48 at the time.  There were two brief dips, one after the Financial Crisis when oil collapsed to $30 and then in 2016 when prices collapsed again into the 40's.

In any case, the US average price is still under $3.

Have you considered that while production was increasing, demand was increasing even faster?  Or are you just too fucking stupid to deal with two variables at once?

 

In reply to by adr

Zepper Tue, 07/03/2018 - 09:38 Permalink

I guess its time that Trump puts on the ban to sell oil out of the states again. Obviously the OPEC cartel has gotten ahold of U.S. oil futures and is doing with them what they want.

 

If those fucking knuckleheads GOP and their inbred brothers and sisters had not removed the wall to keep oil states side. Right now oil would be at $30 a barrel. The GOP and the Democrats and that fucker Obama all colluded to fuck the U.S. people ONCE AGAIN! right before the cunt left office.

 

Put in the oil ban and also pass the bill to allow anyone to sue OPEC and all its members for fixing the price of the worlds #1 commodity.

Expat Zepper Tue, 07/03/2018 - 10:44 Permalink

So, your solution to high gasoline prices (which is what you care about) is to force US refiners to keep the oil they don't want to refine and use it domestically.  This will raise the price of gasoline since the refineries are not designed to run what they are exporting. 

I will give you an analogy perhaps even your limited intellect can understand.  You have a pickup truck. You have a tank full of jet fuel.  Up until today you sold the jet fuel to the airlines and bought gasoline.  Now the government says you can't because 'Murica!  So you fill your pickup with jet fuel.  And proudly wave your flag as you sputter and stall out down the road at five miles an hour.

LOL.  It's great to be a patriot when you have no fucking clue.  you can say whatever you want and feel great about it.  Trumpturds in a nutshell.

In reply to by Zepper

Zepper Expat Tue, 07/03/2018 - 18:47 Permalink

STFU you fucking moron. You have no fucking idea how the oil market works. You stupid fucking expat. Stay the fuck out of the fucking country, shit like you and Michael Moore should be living as pedophile vagrants in Thailand.

 

Go see a fucking doctor you have a bad case of the Trump derangement syndrome. God damn cock sucker!

In reply to by Expat

Expat Tue, 07/03/2018 - 10:40 Permalink

FFS.  $75 oil is cheap.

America is really a shit hole if you can't live with $75 oil.  Two years of Trump and you pussies are whining like little snowflakes.  I guess you will just have to pimp out your little sister again and crank up the meth lab to fill your pickup so you can drive to the stock car races and drink beer.

booty_malone Tue, 07/03/2018 - 13:47 Permalink

Higher oil prices in the USA are mostly a matter of moving money from consumers to producers in the USA.  One American's loss in another's gain.  Much less oil is being imported than even five years ago.