What Affects Gas Prices?

According to the Los Angeles Times, there are approximately 253 million cars and trucks motoring down highways, coasting through scenic country roads, and experiencing the frustration of stop and go city traffic across the United States. Recent census data indicates there are about 242 million adults in the United States right now, meaning there are about 1.05 cars per adult in the US. That means, if you’re reading this, there’s a good chance you drive fairly regularly, and a good chance that you, like so many others, monitor gas prices.

 

Most people seem to keep a fairly cursory watch over world happenings when it comes to things like the price of crude oil. Few people who live outside of the world of economics, government or politics keep close tabs on OPEC or oil reserves and limits. What many do follow, quite stringently in fact, is the price of gasoline around them.

 

Current prices, just about $2.12 per gallon nationally, is the lowest prices have fallen in inflation-adjusted dollars since about 2002. While state to state prices differ greatly–from about $2.734 per gallon in Hawaii to $1.821 in South Carolina–the national average remains at one of the lowest prices we’ve seen in decades.

 

So who or what is to blame (or thank, perhaps) for low gas prices around the country? Many people look solely at the price of crude oil per barrel when determining the price of gasoline, though this doesn’t paint an entirely accurate picture. Oil is currently hovering around $42-$45 a barrel, though that’s not the only determiner for the prices of gasoline in America.

 

In recent years, the price of crude oil has actually had less of an impact on the price of gasoline as it has in the past according to the Energy Information Agency. Distribution and marketing costs, the costs of refining that oil, and taxes have all began contributing more to the price of gasoline in the last year as crude oil prices have become less impactful.

 

Another portion of the gas prices comes from our consumption, which is up this year, and threatens to break the all-time single year consumption record. This is the same reason that we also see gas prices rise during the summer: with the warm months comes more road trips, more driving, and more demand for gasoline. Simple supply and demand denotes that, with larger demand for gas by US drivers would come an accompanying rise in prices if the supply doesn’t increase at a comparable rate.

 

Carbon Emissions and Climate Change

carbon emissions

 

For a long, long time, it was the one thing on the mind of almost everyone across the country–and the world–almost endlessly. It spawned feature-length documentaries, endless scientific studies and debate after debate. The hole in the ozone was the paramount concern of environmentalists everywhere for years. And now the concern has seemingly disappeared as the hole is headed in a better direction thanks to huge action on the part of nations all over the world. Now, how will action taken to combat climate change affect the Earth?

 

The so called fracking boom in the United States has slowed as oil prices have dropped. In February of this year, it was reported that the number of natural gas rigs in the US has been dropping steadily for quite some time now. It’s been well-established by studies and backed by President Obama that natural gas has a smaller negative impact on our environment than oil and coal. So when the fracking boom reached its height, murmurs of the US’s energy independence began to grow louder. Talks of the relationship between less foreign dependence and lower carbon emissions have been abound, spurring headlines speaking to the possibility of imminent US energy independence.

 

But recent studies have indicated that mitigating climate change may not be quite as simple as gaining energy independence from other countries.

 

The study, published on June 7th from the Universiteit van Amsterdam is titled in fairly conclusive language, “Pursuing energy independence will hardly mitigate climate change.” According to Bob van der Zwaan, who is cited in the study, “This study refutes the idea that a policy focusing on energy independence more or less automatically results in sufficient reduction of greenhouse gases.”

 

The key, according to van der Zwaan, a professor of Sustainable Energy Technology at Universiteit van Amsterdam is reducing emissions as a whole. “In planning future energy systems, countries can best focus on technology that contributes to both emissions reductions and energy independence, although the emphasis should always be on technology lowering humankind’s carbon footprint.’”

 

In order to enact the level of change we saw with the ozone layer’s seeming reversal of fate a decade or so ago, larger-scale change will be necessary, more directly related to renewable energy. Natural gas, despite being better for the environment (perhaps “less bad” would be a better way of putting it) is still at its core a nonrenewable energy source. So while the US may lead all nations on Earth in terms of its natural gas usage, the nation ranks 10th in terms of renewable energy use.

 

The 14 percent of electricity that was generated by renewable sources in 2014 pales in comparison to countries like Scotland or Costa Rica whose 97 and 99 percent renewable sources rank them numbers three and two in the world. Sweden recently became the first fossil fuel independent nation recently, setting the bar high for the US.

 

Political leaders tend to be torn on the subject. Typically, those on the right tend to lean towards a reliance on fossil fuels, considering green energy to be a waste of time, money and effort on our behalf. Those on the left, in contrast, often put a higher priority in switching from fossil fuels to natural gas, then to completely green and renewable energy. Few from either side of the political spectrum, however, have concrete plans as to how our reliance on their energy-source of choice will be implemented, and how it will affect our planet.

 

How Fracking is Revolutionizing US Energy

A hot-button subject during presidential debates not only this primary season, but during every US election year in the last few centuries has been our dependance on foreign oil. This is, of course, because of the ever-fluctuating price of oil from Middle-East members of OPEC and our dependance as a nation on oil as an energy source. Now hydraulic fracturing or “fracking” is taking the front seat as a debated subject and a means of self sufficiency for US energy.

By 1989, the United State’s dependence on foreign oil was at 47. By 2006, oil imports peaked at 60 percent. Since then, however, the United States has begun to slowly but surely wriggle free from the clutches of its dependance on foreign oil as a means of energy, capped off by President Obama’s pushes to “free ourselves from foreign oil” in 2012.

Currently, our dependance on foreign oils continues to drop since its peak in the mid 2000s. Partially to thank for this is fracking.

Hydraulic fracturing may be the answer to the United States becoming completely energy self-sufficient in the next few decades. The process is fairly straightforward and has been refined and improved over time, eventually rising to the point of being the most efficient means of collecting natural gas in existence.

To start the process, a large drill bores its way into the earth over a natural gas deposit. From there, a pressurized liquid is injected into the rock, fracturing it and allowing the natural gas contained within it to be released. Though the process started with mostly vertical drilling processes, recent exploration of horizontal drilling has allowed fracking to capture an even higher amount of natural gas, thereby increasing the overall productivity and efficiency of the project.

The liquid injected in the process involves several different agents, typically a mixture of sand, water and chemicals. The sand is useful in holding the fissures open after the pressure has been released, allowing more gas to leak out and be collected.

Fracking is hardly a new technology, as its roots can be traced back as far as the early 1900s. The first commercial fracking processes came into existence around 1940 and were explored and studied thoroughly. Despite getting its start decades ago, fracking has only in recent years become as efficient and widely-applicable as it is now.

High oil prices from Saudi Arabia and the rest of OPEC played a large part in the fracking boom in the US in recent years. Now, other parts of the world, including the UK are opening their collective minds to the idea of fracking as a means of switching to natural gas & self-sufficiency.

Recently, the process was approved in the UK for the first time since 2011. This may seem like small news to some, but it’s a key indicator that the world as a whole has taken notice of the advantages that fracking can have on a country, its economy and its efficiency. 

 

Oil may be in a Slump, but the US can Stay Active

American oil isn’t what it used to be, for better or for worse. Recently, NPR’s Michel Martin sat down with famed oil businessman T. Boone Pickens, and picked his brain on the state of oil in the USA.

Saying “things aren’t good” oil-wise is a bit of an understatement. For the fifth time since 1980, oil prices have been reduced by over half. In the past, this was usually corrected by Saudi Arabia over supplying oil. Most recently, the price of oil has been in free fall— it plummeted from $100 to just over a quarter of that value. At $26 a barrel, the oil producing powers that be of Saudi Arabia and Russia have left the US on it’s own. In order to fix this, oil production has been drastically cut. In just a few years, the number of oil rigs was decreased from 1,609 to 342.

Pickens is convinced though, that oil will make a comeback. The problem though, is that he’s unsure of when that will be. But the industry doesn’t have to roll over completely and just wait it out. Pickens encourages an active exploration into clean energy sources. Wind and solar resources are abundant in America, he says, and the fact that so little of that energy output is used for transportation indicates a source of huge potential. This not only keeps the domestic economy humming, but will increasingly keep OPEC irrelevant. However, because we use so much oil— 94 million barrels— it’s hard for him to envision a world where that fossil fuel is suddenly pulled out from under us and wind and solar take the reigns.

How The Oil Slump Is Affecting Investors

West_Texas_Pumpjack

The oil slump is taking its toll on everyone within the industry. Investors have certainly suffered a great deal, with recent reports showing losses of at least $150 billion in the value of oil and gas company bonds. Crude prices began falling in the summer of 2014 and have showed little to no signs of rebounding. This has fueled fears of a wave of defaults in the United States and emerging markets.

The 300 largest oil and gas companies in the world have seen $2.3 trillion sliced from their stock market value over this time period as well, according to an analysis by the Financial Times. This comes out to a 39 percent drop since oil began its initial decline.

These staggering numbers show just how serious of a problem the financial strain on oil producers continues to be. Even with the partial recovery in prices since June, oil is still down about 65 percent from its peak back in June 2014.

Cheaper oil has has certainly been welcomed by many outside of the industry.. Lower oil prices can act as a stimulus to global economic growth by redistributing real incomes from producing countries to consumers, who tend to be more likely to spend the gains they make. But these weaker oil prices can also lead to more volatility in equity and bond markets, which can affect everyone’s investments.

“Low oil prices fuel a reduction in risk-taking, and when there is less risk-taking, asset prices will fall. It can lead to a downward asset price spiral,” states Hyun Song Shin, chief economist of the BIS.

The drop in oil has frustrated portfolio managers, especially those who had bet on stabilization last March, when prices had rallied for a brief period. The subsequent decline was a major blow to investors who bought bonds just before the prices took a second, deeper drop.

“The problem with the market is that it’s very naive to say I’m going to wait until the bottom and then I will buy,” Matthew Freund, a portfolio manager with USAA, said. “Four weeks ago . . . it was very hard to find a bid. Fast forward to today and everything is very well bid and it is very difficult to find attractive offerings.”

It is difficult to know where oil prices will stand in a few months from now. But one thing that is for certain is that the volatility in the oil markets is causing a lot of economic problems for investors and entire countries around the world.

 

Wells Fargo Is Bracing For More Loss From Oil-and-Gas Loans

To say it nicely, the oil-and-gas industry has hit a bit of a rough patch. Unfortunately, it does not appear that any sustainable level of rebound will take place in the immediate future. 

In response to these concerns, Wells Fargo has set aside $1.2 billion to prepare for any potential losses due to the oil-and-gas sectors. They warned that trouble is brewing, and this course of action shows that they are not willing to take any chances. 

The San Francisco-based bank stated in a regulatory filing that 10 percent of its loan loss reserves are tied to the oil-and-gas industry, despite the fact that these loans only account for 2 percent of its overall loan portfolio. 

Understandably so, many investors are now wondering whether Wells Fargo will get burned badly by the oil-and-gas sector. The Wall Street Journal pointed out earlier this week that Wells Fargo regulatory filing was the first time the bank has offered details on its potential oil-and-gas credit losses. 

John Stumpf, Chairman and CEO of Wells Fargo, had even more bad news on the energy front.

“If oil prices remain low for a prolonged period of time, there could be additional performance deterioration in our oil and gas portfolio resulting in higher criticized assets, nonperforming loans, allowance levels and ultimately credit losses,” Wells Fargo stated in the filing.

But thats not all, the problem could actually be even worse, affecting even more people in the industry. Wells Fargo, which has major operations in oil patch states, such as Texas and North Dakota, said that the loans for those working in the energy sector may also experience some credit challenges. 

Wells Fargo’s next earnings call is scheduled for April 14. We can be sure to expect that the bank’s exposure to the energy sector will be a hot topic. 

Cheap prices fail to kill U.S. oil boom

Many smart people thought U.S. oil production would fall off a cliff along with the crash in crude prices.

In reality, it hasn’t even come close to killing American production. The U.S. pumped 9.35 million barrels of oil a day in October, according to the latest government statistics available. That’s up from 9.13 million barrels in October 2014.

“Oil production from the U.S. is very resilient, particularly from shale production,” said Bielenis Villaneuva Triana, a senior analyst at Rystad Energy.

Official stats aren’t available yet for the end of 2015 but the Energy Information Administration estimates U.S. production slipped to 9.24 million in December. That’s hardly an all-out collapse.

All of this matters because the 70% plunge in oil prices since mid-2014 has been fueled by an epic supply glut. The oversupply has largely been created by skyrocketing U.S. output, which surged from just 4.6 million barrels per day in October 2005 to a high of 9.69 million last year, according to the EIA.’

To learn more, please check out the full article below.
Cheap prices fail to kill U.S. oil boom

The Russian Economy’s Reliance On Oil

To put things lightly, Russia’s economy had an awful 2015. Oil prices tumbled from their mid-2014 peak of over $100 barrel; this drop in oil hit Russia especially hard, as the country’s economy is heavily dependent on oil and gas exportation. GDP contracted by nearly 4%, while inflation ran close to 13%.

The rouble lost half its value against the U.S. dollar in the second half of 2014. It fell another 20 percent through 2015, before the substantial decline began to slow down. In an effort to signal confidence to the the country, and the world, that their economy was going to rebound, Vladimir Putin, Russia’s president, declared that “the peak of crisis” had passed.” If only it were that simple. 

The continued turbulence within the oil market has put raised serious doubts about any thoughts of a fast recovery to bed. According to the IMF, Russia’s GDP will likely contract again this year, by 1%.

Although things are looking bleak, lets not exaggerate the issue. Russia is unlikely to repeat the acute problems that lead to this economic turmoil. After all, Russia businesses have responded to these problems by building much healthier finances. Furthermore, the foreign debt has fallen by a third since 2014. 

While the private sector seems to have gotten their finances under control, the public sector still has some work to do. The government budget is assuming that oil averages a price of $50 a barrel. However, for every $5 that this estimate overestimates the price of oil for 2016, the budget deficit rises by roughly 1%. Let’s hope these estimates prove to be conservative. 

If Russia continues to run a budget deficit, this will likely force Putin to print more roubles, leading to more inflation. This would hit struggling Russian families hard, who have already seen a significant drop in their buying power and quality of life. 

For all intents and purposes, the dramatic phase of Russia’s economic purpose is behind it, as Putin has claimed. For ordinary Russian citizens, however, the second phase of the crisis will not seem much better. 

The Oil And Gas Exploration Project In Jamaica

tony vanetik

International oil and gas explorers are, once again, back in Jamaican waters, venturing on a data-collection exercise. The explorers now have the support of the National Environment and Planning Agency (NEPA) and local fishing community.

This is the first exploration company in the past 10 years to re-energize the search for oil off the Jamaican shore. The United Kingdom-based company leading the efforts, Tullow Oil, has brought the gamut of data-capturing equipment for the second phase of its venture.

Phillip Paulwell, minister of science, technology, energy and mining, recently took a tour of the vessel, BGP Challenger, yesterday at the Kingston Port. During the tour, Paulwell spoke on the importance of this exploration, stating that “this is a major deal for Jamaica’s oil-and-gas exploration.”

Paulwell was also accompanied by State Minister Julian Robinson, who added: “For them to start this work, they had to get approval from NEPA, and they have signed an important agreement with our fisherfolk in the event of any matter for full compensation.”

Oil and gas exploration in the area began in the 1980s; at the time, only the Government of Jamaica was responsible for the funding of the project. According to Paulwell, the new exploration project has gained momentum with the private sector now coming on board with Tullow Oil signing an agreement.

Back in November 2014, the Petroleum Corporation of Jamaica (PCJ) signed a production-sharing agreement with Tullow Oil for oil and gas exploration in Jamaica’s offshore areas. Paulwell told The Gleaner that $70 million was committed to the project.

“They have so far spent US$10 million, and this exercise will cost them another US$4 million to acquire additional data,” stated Paulwell. “Although we are convinced that we have oil and gas in and around Jamaica, we really have to pinpoint the location before drilling can take place.”

Despite the large drop in the price of oil, the firm has still demonstrated a firm commitment to the project. The agreement was signed 15 months ago when the price of oil was well over $100 a barrel. “Today, it is about US$30, but they are still committed, and not only them, since we signed the agreement, others have approached PCJ.”

Paulwell added that they are still in negotiation to bring on another major firm as well. There has been a high level of confidence in what they have done so far, leading to interest from other organizations. This level of interest, despite the current price of oil, shows the confidence that the industry still has moving forward.

To read more about this story, check out this article from The Jamaica Gleaner.