Archives: Our View
To read more on this, click the title link above or here.
PKVerleger LLC and The Brattle Group have released a white paper on the potential impact of a border adjustment import tax on crude oil and petroleum product markets. To view or download the white paper, please click here. For a short mathematical explanation of how a border adjustment tax would work, click here.
"OPEC members will say, 'if you (raise output), we are going to ramp up production and push oil back down to $35' ... I hope shale in America will be responsible and realize what's happened and allow the higher oil price to be sustained." Ivan Glasenberg, CEO of Glencore, as quoted by Reuters.
Read our response here.
The Group of Thirty today released the paper, Oil and the Global Economy. In it, Dr. Verleger argues that the major oil firms are economically ossified and discusses three forces he believes "threaten to permanently transform the oil industry." (Read the G30 press release here.)
Consumers in parts of the United States benefit from lower gasoline prices thanks to mature energy futures markets. Consumers elsewhere in the country, particularly California, do not. The cost to Californians could total $2 to $3 billion in 2016 as residents there pay between $0.15 and $0.20 more per gallon than they might if the state had a futures market. Read more here.
The EIA estimates a 6.2 percent increase in gasoline disappearance from the level recorded the same week in August in 2015. Adjusted for the likely underreporting of exports, use increased last week from 2015 by 4.7 percent. Year to date, the EIA shows an increase in gasoline disappearance over 2015 of 3.4 percent. Adjusted for the likely underreporting of exports, this increase is 0.9 percent.
Oil Markets Enter the Adelman Era
Read more here.
Energy: A Gathering Storm II -- The global crude oil E&P investment gap is growing. Read more here.
The California Exception -- Retail gasoline prices in California surged past $5 per gallon at some locations recently. The price jumps have brought out the kooks. Read more here.
QE and Oil Prices -- Most oil market observers believe the 2014-2015 crude oil price collapse began on November 27, 2014, when Saudi Arabian officials announced they would not cut production. As Dr. Verleger explains in his paper, this is a convenient but incorrect explanation. Read more here.
WE WERE RIGHT! -- Keystone XL will be the "tar sands road to China." Read more here.
The Rise of Petro-Exuberance -- Former Federal Reserve chairman Alan Greenspan coined the phrase "irrational exuberance" in 1996. He worried that dot-com assets were overvalued. Four years later, the bubble burst, confirming his concerns. Presently we are observing the last gasps of irrational exuberance in petroleum. Call it "petro-exuberance." Read more here.
Who Put the BS in BIS? -- Despite what the Bank for International Setttlements asserts in a recent press release for a forthcoming study, commodity markets have not caused the crude price increase. Read more here.
The 2014-2015 Oil Price Decline: Deja Vu Redux -- The 1985-1986 crude oil price decrease was almost identical to the current price slide. Read more here.
The Rise of the ManufRacturers -- Quite simply, the path for global oil and gas prices going forward is down. Read more here.
TRADERS: DO NOT RELAX! -- Read more about why you should not here.
OIL PRICE WAR 3.0 -- Very few people have participated in all three crude oil price wars. Far fewer actually predicted all three. Phil Verleger was one. Read his "Oil Price War 3.0" here. (Notes at the Margin is sent to PKVerleger LLC clients. For more information on the services of PKVerleger LLC, click here.)
European Refiners Face Extinction -- A recent Financial Times article by Ed Crooks suggests European refiners are being harmed because US refiners are benefiting from low-cost crude. He is wrong. European refiners, like the dinosaurs, face extinction because they failed to adapt. Read Dr. Verleger’s comment on the Crooks article here.
(To view previous Our View postings, click here.)
Chuck the Models -- American entrepreneurs are on a roll. America's future could not be brighter. Read more here.
Hit Putin Where It Hurts -- Selling oil from the US Strategic Petroleum Reserve could cut world oil prices by $10 to $12 per barrel. Although that amounts to only about a ten-percent reduction, it would cut Russian export income by around $40 billion, about ten percent of the country's 2012 fuel export income according to the WTO. This action could exacerbate the ruble's decline as well. Read more here.
Renewable Fuel Standard Kept Gasoline Prices Down -- Consumers paid $3.25 to 3.30 per gallon for gasoline over the holidays. In contrast, they paid $4.11 in June 2008 when oil prices peaked. But for government action taken in 2007, vehicle owners could easily have paid $4.25 or even $5 per gallon for gasoline this Christmas. To be blunt, we got lucky. For once, the U.S. government did something right. Read more here.
Futures Markets Have Cut Crude Oil Prices $30 per Barrel -- US consumers paid at least $1 per gallon less for gasoline in 2013 than they would have in the absence of futures markets. Former CFTC chairman Gary Gensler did his best to deny them this benefit. Read more here.
Will This Be the American Decade or the American Half-Century? -- Some thought this would be China's century. They were wrong. Circumstances have made it the North American century. Read more here.
Renewable Fuels Legislation Cuts Crude Prices -- Crude oil prices today are between $15 and $40 per barrel lower than they would be had Congress not passed the Energy Independence and Security Act of 2007. Read more here.
The International Energy Agency Continues Its Program of Economic Destruction -- By intentionally sterilizing more and more of the world’s oil supplies, the IEA is driving crude oil prices higher as stocks accumulate and wreaking havoc on economies across the globe. Read more here.
Ethanol Cuts Crude Price $10 to $30 per Barrel -- The US renewable fuels program provides a benefit that has gone unnoticed, one that can be measured in the lower price of crude oil on world markets. Read more here.
Canadian Crude Exports to Asia: We Saw It Coming Two Years Ago -- On August 22, 2013, The Wall Street Journal published an article headlined "Canada Looks to Sell Its Oil Beyond the US," most likely to Asia. We correctly predicted an action like this in the February 2011 Petroleum Economics Monthly. Download or open the February 2011 report here.
It's Not the Hedge Funds and Money Managers; It's the Hedgers -- Press attention generally focuses on the position of hot money in oil futures, not the activity of those who use the markets. In the case of Brent futures, though, they make a mistake. Those who fail to understand do so at their peril. To view or download the PDF of this paper, please click here.
The Blend Bump Once Again -- In this paper presented to the CFTC, we show that the market clearing price of RINs is about $1. To view or download the PDF of this paper, please click here.
The US Will Become the World’s Oil Supplier of Last Resort -- The May 2013 Petroleum Economics Monthly discusses the implications of the change in the economic geography of global oil markets. One conclusion is the US can become the petroleum lender of last resort or the “Federal Reserve of Oil.” Read more here.
Gasoline Consumption: The Horrible Story -- US Bureau of Economic Analysis data released on April 29, 2013, show that current dollar US consumer spending on gasoline decreased 5.6 percent in March 2013 from March 2012. In real terms, that is a three percent decline from last year. The trend looks to continue down. Read more here.
The Price of RINs: How High! How Stupid! -- Click here for excerpts from the March 18, 2013 issue of Notes at the Margin, which has been quoted widely. We explain that there is no RIN problem, just obstruction by refiners.
The End of the Oil Crisis -- By 2023, the US economic difficulties that began with the first oil crisis fifty years ago will likely be solved. Click here to view or download the paper.
Economic Consequences of Falling Off the Fiscal Cliff if Oil Prices Decline -- An oil price decrease resulting from the US falling off the fiscal cliff could ease the economic impact. Read more here.
Market Impact of Hurricane Sandy -- The economic impact associated with Hurricanes Katrina and Rita, as large as it was, will likely pale in comparison to the coming one from Hurricane Sandy. Read more here.
Major SPR Oil Sales Likely Over New Few Years -- The United States could add 300 million barrels to the world oil market in 2013 and 2014 as it disposes of oil no longer required to be held in the Strategic Petroleum Reserve. Sales could contribute $30 billion to budget reductions. Canada may be the big loser. Read more here.
The BP Royalty Trust: Warning of Impending Price Declines? Find out here.
Regulating Oil Prices to Infinity. Comments on the CFTC's proposed regulation of price reporting agencies. Learn more.
The Amazing Tale of US Energy Independence. In the Spring 2012 issue of The International Economy, Dr. Verleger writes, "In a little more than a decade, the United States will find itself as an energy exporter and this amazing outcome will have happened by accident. The United States will then have low-cost energy supplies for decades." Learn more.
Decline in US Gasoline Consumption Accelerates -- The February 2012 Bureau of Economic Analysis data on consumer spending indicated that the decline in US gasoline use is quickening. Real purchases fell six percent from year-earlier levels. Learn more.
Strengthening Sanctions on Iran with Strategic Reserves -- The United States today holds almost 300 million barrels of excess oil in its Strategic Petroleum Reserve. In his paper on this issue, Dr. Verleger suggests these surplus barrels should be sold to supplement efforts to reduce Iran’s crude export sales. This will help tighten sanctions on Iran and ease concerns of countries that must replace their Iranian crude imports. Learn more.
The Keystone Pipeline Will Not Increase US Energy Security: The proposed Keystone XL pipeline expansion, which would move oil from the Canadian tar sands to the US Gulf, has been defended on the basis of energy security. Proponents assert the increased oil supply from Canada will displace less secure imports from other foreign sources. This claim is incorrect. The Keystone project will likely decrease US energy security. Learn more.
Before 2021, US drivers will pay $10 per gallon for gasoline or $0.50 per gallon for E85 (an 85:15 ethanol/gasoline blend). Before 2021, diesel prices in Europe will hit €2.50 per liter if the euro/dollar exchange rate and taxes stay steady. Before the decade closes, US consumers will also pay less than $2 per gallon for gasoline as their European counterparts pay under €1 per liter, assuming no tax or exchange rate changes. Learn more.