Changing Dynamics in US Energy Markets

Changing Dynamics in US Energy Markets image

Changing Dynamics in US Energy Markets

09/10/2015 | Author: Matt Smith

It is always useful to take a look at the three monthly reports from the acronym-tastic trio of the EIA, IEA, and OPEC, to look at the broader trends in energy markets. Therefore, in the aftermath of the EIA’s Short Term Energy Outlook, here is some food for thought:

–Gasoline is cheap, and is going to get way cheaper

The EIA projects that retail gasoline prices are going to average $2.11/gal in the final quarter of the year (on the national average). This is pretty epic when you put it in context with recent years:

Q4 2014 average: $2.90/gal
Q4 2013 average: $3.30/gal
Q4 2012 average: $3.50/gal
Q4 2011 avearge: $3.40/gal

Retail gasoline prices generally make their low at the end of the year, and this year looks to be swinging for the monkey-bar of $2:

gasoline EIA

Prices are already below $2.40/gal on the national average, with prices approaching $1.80/gal in some areas of South Carolina according to GasBuddy. Even Chicago has seen prices unwind the recent Whiting refinery outage sponsored-spike, building its charge for the low $2’s by year-end:

retail gasolineNonetheless, the EIA revised its expectation for gasoline demand lower for the fourth quarter, down 0.5% from last month’s report – despite the low price environment (hark, lowest since 2004). It also projects gasoline consumption to remain flat next year, as fuel efficiency offsets greater vehicle miles traveled.

I’ll put my neck out and say I disagree here; I think gasoline consumption will show continued strength. Not only are we seeing more people hitting the road given lower prices, an improving economy, and expensive plane tickets, but people have short memories when it comes to high gas prices – as exemplified by rising SUV and truck sales.

Rising North Sea Production has the timing of a bad comedian

Growth in non-OPEC production this year has been in large part attributable to investments made when oil prices were higher. In retrospect, the decision to invest in the Golden Eagle, Peregrine, and Kinnoull fields in the UK’s sector of the North Sea couldn’t have been more poorly timed.

The investment decision was made in the second half of 2011, when Brent crude prices were over $100 a barrel, and the three fields started producing at the end of 2014 and the beginning of 2015 – only to be met by oil prices at a six-year low.

The UK produced about 850,000 barrels a day last year, and production has been estimated to have risen by 3% in the first half of 2015, as these investments have come to fruition. Non-OPEC production is expected to be flat next year, as falling US production offsets growth elsewhere. For now, the UK is looking up:

ClipperData UK loadings

–Gulf of Mexico oil production is set to rise….while total production continues to fall

Recent revisions to EIA production data led to fairly hefty downward revisions to Texas production earlier in the year, but also upward adjustments for the Gulf of Mexico (these ranged from

About The Author

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Matt is a Director of Commodity Research at ClipperData. Matt specializes in extracting key themes from technical and fundamental analysis of the global energy market, and communicating these through daily and weekly deliverables. He also provides oil and natural gas analysis and commentary to national and international media outlets that include CNBC, Fox Business, Russia 24, the Wall Street Journal, MarketWatch, AFP, Bloomberg, Reuters, and the Oil Daily. Prior to joining ClipperData, he worked for eight years at Schneider Electric / Summit Energy as a Global Commodity Analyst, where he also founded and authored the blog, Energy Burrito. He started his career at the Royal Bank of Canada in the UK, spending eight years with the bank. During that time, he managed $55 million in assets as a portfolio manager and financial analyst.