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Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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Peaks and Troughs

Peaks and Troughs

As we charge through April and head first into the joys of spring, we are filled with reminders of rebirth, rejuvenation, renewal, and regrowth. Well, we are supposed to be…but instead I just see examples of peaks and troughs. Hark, here are four such specimens.

First up, peak gasoline prices. It is a seasonal thing for retail gasoline prices on the national average to bottom out at the end of the year, then gradually increase through the first quarter to peak ahead of ‘driving season’ (Memorial Day to Labor Day). According to AAA, these are the peak scores on the doors in recent years:

2011 high = $3.98 on May 4th
2012 high = $3.94 on April 4th
2013 high = $3.78 on February 26th
2014 high = currently $3.61

One positive from these numbers is that each annual high is coming in sequentially lower than the previous year. All the while, the average for the year has gravitated around $3.50 for the last three years, but will hopefully be shy of this number in 2014. So even though a low-price gas environment may be a pipe dream, a more predictable one is a reality:

 Gasoline Prices, National Averages

Next up: natural gas storage troughs. It has been the worst winter since the 1970′s in the US, with the onslaught of polar vortices hitting key heating regions of the US (Northeast, Midwest) to draw down storage by a record 3 Tcf.

Related Article: U.S. Oil Boom Makes Gas Cheaper, but not by Much

We have now reached a trough of 822 Bcf – the lowest level since 2003, and need to see a corresponding record injection season to get us anywhere near the 3.8 Tcf level we were at back at the start of last winter. Consensus is that we will come in closer to 3.4 Tcf, even with rising record domestic production. A warmer-than-normal summer could usurp this expectation:

 Bcf

Back to pinnacles, and we are at the peak of unplanned crude oil outages from an OPEC point of view, as highlighted by the below chart from the EIA’s short-term energy outlook. Led by outages in Libya, and combined with stymied Iranian production (h/t ongoing sanctions), we are close to 2 mbpd offline, even without the sabotage-sponsored losses seen in Iraq and Nigeria. As crude prices remain in triple digitdom, it would appear that Libya holds the key to lower prices:

 Estimated Historical Unplanned OPEC Crude Oil Production Outages

Finally, we look lower again to the potential for a trough in US oil imports…to nil. The EIA just released its latest Annual Energy Outlook, and it highlights the potential for imports to be completely negated by ongoing strength in domestic production.

Related Article: What Happens After the Boom?

This is a rather surreal turnaround since mid-last decade, when the US was 60% reliant on imports to meet consumption:

Net Import Share of U.S. Liquids Consumption in Three Cases 

As ever, thanks for playing…may the rest of your week have some spring in its step!

By Matt Smith




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