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Posts tagged “Brent”

By Robert Rapier on Jan 15, 2014 with 10 responses

Grading My 2013 Energy Predictions

Normally I would have had this out two weeks ago, but the 60 Minutes story has thrown me behind schedule. I continue to get lots of comments and questions about Vinod Khosla and now his righteous indignation over how the 60 Minutes story was portrayed (especially since that was the only part of my interview they aired), so I may follow up in a week or so to explain (once more) the precise nature of my criticism — as well as what it isn’t. To be honest, I am tired of writing about it, and I am sure that regular readers are tired of reading about it, but new readers continue to ask questions that indicate they misunderstand the nature of my criticism.

In the meantime, here is my report card for my predictions from last year. In the next article, I will give my predictions for 2014.

In January 2013, I made the following five predictions for 2013:

  1. Brent and WTI crude prices will both average less in 2013 than in 2012.
  2. The Brent-WTI price differential — which has widened substantially in the past two years — will narrow in 2013.
  3. The average annual price of natural gas — as measured by the Henry Hub Gulf Coast Natural Gas Spot Price — will be higher than in 2012.
  4. The Obama Administration will approve the northern leg of the Keystone XL pipeline.
  5. US oil production will continue to grow (but at a slower pace than in 2012), reaching the highest level since 1995.

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By Geoffrey Styles on Jul 12, 2013 with 2 responses

Are Oil Prices Signalling Another Gas Price Spike?

Which Oil Price to Watch?

Some economists and consumers are bracing for a sharp uptick in gasoline prices, because the price of crude oil has shot up by $10 per barrel in the last month. Except that it hasn’t, at least not if we’re talking about the global price of crude oil that’s factored into the price of the petroleum products sold in much of the US, especially along the coasts.

The global oil market, reflected in the price of UK Brent crude, is only up about $5 per barrel this month, mainly due to the situation in Egypt. A big part of the jump in domestic oil prices reflects the closing of a historically anomalous gap as US oil moves back into line with the rest of the world.

Such an increase in oil prices does not automatically herald a rise in gasoline prices, especially if it mainly erases a discount that benefited refiners in one region of the country. Moreover, gasoline and crude oil as commodities move in separate markets, linked but not in lock-step.  Over the medium-to-longer term they must clearly be connected, but in the short term each responds to distinct forces of supply, demand, inventories and expectations.
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By Robert Rapier on Jan 14, 2013 with 4 responses

Five Energy Predictions for 2013

Normally when I list the Top 10 stories of the year, I close the post by making predictions for the upcoming year. For 2012, my predictions were:

  1. President Obama will easily win reelection, which means that energy policies will likely continue along the current trajectory.
  2. The Keystone Pipeline project will be approved (although that decision may still slide into 2013).
  3. Natural gas prices will remain low, averaging below $5/MMBTU for the year.
  4. Oil prices — both West Texas Intermediate and Brent — will average above $100/barrel in 2012.
  5. We will look back on the fact that Newt Gingrich was once the leading Republican contender for president and have a good laugh about it.

Those predictions were correct for the most part. The first and third were correct, I believe the second will ultimately be correct, the fourth was mixed (Brent averaged above $100 and WTI averaged about $94), and the 5th just depends on one’s personal opinion. In my opinion, it is correct.

However, when I listed the Top 10 Energy Stories of 2012 — as voted upon by readers — I failed to list my predictions for 2013. So here they are:

  1. Brent and WTI crude prices will both average less in 2013 than in 2012.
  2. The Brent-WTI price differential — which has widened substantially in the past two years — will narrow in 2013.
  3. The average annual price of natural gas — as measured by the Henry Hub Gulf Coast Natural Gas Spot Price — will be higher than in 2012.
  4. The Obama Administration will approve the northern leg of the Keystone XL pipeline.
  5. US oil production will continue to grow (but at a slower pace than in 2012), reaching the highest level since 1995.

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By Robert Rapier on Dec 18, 2012 with 3 responses

Grading My Energy-Related Predictions for 2012

In my list of Top 10 Energy Related Stories of 2011, I made five predictions for 2012. Those predictions were:

  1. President Obama will easily win reelection, which means that energy policies will likely continue along the current trajectory.
  2. The Keystone Pipeline project will be approved (although that decision may still slide into 2013).
  3. Natural gas prices will remain low, averaging below $5/MMBTU for the year.
  4. Oil prices — both West Texas Intermediate and Brent — will average above $100/barrel in 2012.
  5. We will look back on the fact that Newt Gingrich was once the leading Republican contender for president and have a good laugh about it.

I never doubted for a second that Obama would win reelection, for reasons I have discussed on a number of occasions. The reason really boiled down to the weakness in the Republican field. Every contender had major baggage that I felt would keep some of the base from voting for that candidate. I believe this is indeed what happened, so the major swing states all went Obama’s way. Newt Gingrich is a prime example of the problem with the Republican field. Indeed, with all of his baggage, the fact that he led the pack for the nomination when I made these predictions boggles the mind.

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By James Hamilton on Jun 25, 2012 with 1 response

Get Set For a Dramatic Fall in Gas Prices

West Texas Intermediate crude oil, which had been selling for $105 a barrel at the end of March, fell to $80 a barrel last week, while Brent has come from $125 down to near $90. These price declines will translate into substantial savings for U.S. consumers in the weeks ahead.

Since Brent and WTI diverged, it has been Brent that matters for U.S. retail gasoline prices; this fact and the reasons for it were discussed here. A regression of the average U.S. retail gasoline price on the price of Brent over 2000-2012 captures the close relation (OLS standard errors in parentheses):

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By James Hamilton on Feb 24, 2012 with 2 responses

Crude Oil and Gasoline Prices: Betting on Iranian Tensions

Crude oil prices this week reached their highest level since last April. What will that mean for U.S. consumers at the gas pump?

The first question to be clear on is which crude oil price we’re talking about. Two of the popular benchmarks are West Texas Intermediate, traded in Oklahoma, and North Sea Brent. Historically these two prices were quite close, and it didn’t matter which one you referenced. But due to a lack of adequate transportation infrastructure in the United States, the two prices have diverged significantly over the last year.

My rule of thumb has been that for every $1 increase in the price of a barrel of crude oil, U.S. consumers are likely to pay 2-1/2 more cents for a gallon of gasoline. The yellow line in the graph below plots the average U.S. retail price of regular gasoline in the U.S. over the last 4 years. The blue line is the gasoline price you’d predict if you applied my rule of thumb to the WTI price (assuming 80 cents/gallon for average tax and mark-up), while the fucshia line gives the prediction if you assume that the U.S. retail price is based on Brent. The three lines were quite close until Brent began to diverge from WTI at the beginning of last year. Since then, the U.S. retail price has tracked the world Brent price much more closely than it has WTI.

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By James Hamilton on Feb 21, 2012 with 4 responses

Wealth Creation: Playing the Crude Oil Spreads

Here’s my suggestion for how to become rich: buy low and sell high.

It’s a strategy that works for individuals, and can work for the entire nation as well. If you can figure out a way to find resources whose value in their current use is not very great– in other words, if you buy low– and redeploy them somewhere else where their value is much greater– in other words, sell high– then you will not only add to your personal wealth, you will be creating new wealth for society as a whole. The process of allocating resources to their most efficient use is the heart of what drives economic growth. The fact that individuals have a strong personal incentive always to be looking for better ways to do that is the primary factor responsible for the standard of living that we enjoy today.

Let me give a concrete example of what I’m talking about. On Friday, you could buy a barrel of light, sweet crude oil produced in North Dakota for less than $81. On that same day, oil refiners in Port Arthur on the coast of Texas were paying around $110 to import a similar grade of oil produced in Nigeria. That’s $30 worth of incentive to you to try to figure out a way to transport oil from North Dakota to Port Arthur in order to replace a barrel of imported Nigerian oil with Williston sweet. As a nation, if we could divert some of the resources we are currently devoting to pay for oil imported from Nigeria, and use them instead to enable the Port Arthur refinery to get its oil from North Dakota, we will become richer.

Buy low, sell high.

So there’s a very concrete mission. How can you go about implementing it?

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By Robert Rapier on Dec 29, 2011 with 38 responses

Top 10 Energy Related Stories of 2011

Here are my choices for the Top 10 energy related stories of 2011. Don’t get too hung up on the relative rankings. They are mostly in no particular order, although I think the top story is pretty obvious. 1. The Fukushima Daiichi nuclear disaster On March 11, 2011 the tsunami that flooded Japan’s Fukushima Daiichi nuclear plant resulted in the worst nuclear crisis since Chernobyl. The tragedy spurred heated debates over whether nuclear power could ever be totally risk-free. Several countries decided that the potential consequences were just too great, and reversed their plans for new nuclear plants and in some cases shuttered existing plants. The incident will likely slow the global development of nuclear power for years, just as… Continue»