In my article earlier this week we covered more of the world’s geopolitical impact on the high oil and gas prices. If Russia invades, the pricing model supports $120 to $135 in the short run and even higher in Q3 and Q4.
For the United States market on gasoline, AAA stated ” “An increase in total stocks and a decrease in demand typically put downward pressure on pump prices, but rising crude prices continue to push prices higher instead.”
OPEC made an announcement this week that world oil storage is lower than normal, and there is limited production across member countries available to support the global increase in demand. The world’s reductions in COVID mandates are driving demand for travel. Thus the old supply and demand pricing influences step in and support the continued upward pricing of $100 oil.
The EIA published the weekly status report on the United States oil inventory. “Crude oil inventories in Cushing, Oklahoma, totaled 32.9 million barrels (excluding pipeline fill and stocks in transit by water and rail) in the week ending September 10, which is a 42% decrease since the beginning of the year. Crude oil inventories at Cushing are now 26% lower than normal, based on the previous five-year (2016–2020) average for that time of year.”
The key numbers listed above are 42% lower since the first of the year, and 26% lower than a 5-year average. These supply statistics, coupled with the WTI and Brent pricing support are going to keep the price to the refineries high. This domino effect will be passed on to consumers and will support prices as high as $5 to $7 in parts of the country.
Natural gas is not going to be as impacted by the world conflict for several reasons.
- The current supply is adequate to support normal seasonal prices.
- All of the natural gas in the Haynesville formation supports the LNG export in the Gulf of Mexico to Europe and Asia.
- The price for natural gas in New England is currently $180 oil equivalent as they import LNG from Trinidad, Norway, and Russia. (Political energy policies and pipeline calculations keep these high energy prices.) They do not draw down other U.S. inventories.
The Bottom Line:
All of the matrices impacting gasoline at the pump support high prices. There are several items listed above that would support even higher prices. Those impacting items are significant enough to support those high prices through Q4 of this year.
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