Gas prices shouldn't be high, but they are -- here's why
The rest of the world isn't keeping up with US production.
This post comes from Javier E. David at partner site CNBC.
As the summer driving season nears, retail gas remains stubbornly lodged near $4 per gallon. According to the Energy Information Administration, gas prices rose for 12 straight weeks through late April, and were 20 cents a gallon higher than the same point last year.
So what gives?
"The world's not swimming in crude or gasoline yet," said Francisco Blanch, commodities strategist at Bank of America-Merrill Lynch, in an interview. "Despite all the crude and gasoline production in the U.S., international markets are not tagging along."
International developments matter, analysts say, because gas prices are linked to internationally priced Brent crude. Turmoil in Ukraine and spotty supply from the perenially unstable Middle East has conspired to keep oil above $100 per barrel.
In a research note this week, analysts at Goldman Sachs called crude oil fundamentals "stable but tight," adding that most developed-economy stockpiles "remain at low levels" amid lower-than-expected output from hotspots like Libya and Iraq.
That backdrop explains why prices at the pump have defied the gravitational pull of a litany of mitigating factors such as a more fuel-efficient U.S. car fleet, rising domestic production and a still-fragile recovery that should blunt demand.
BofA-Merrill points out that domestic oil and gas production has driven gasoline imports to near zero, while the U.S. is churning out nearly 10 million barrels a day. Despite all this, there has been little relief at the pump due largely to factors outside America's control.
The International Energy Agency said in its most recent report that OPEC will need to increase its own production this year to sate rising demand. Meanwhile, the energy watchdog said non-OPEC production is also falling short of expectations.
'Shale boom may not be helping'
"In the U.S. and Canada, yes, there is a big shale revolution going on…but the rest of the world is not producing enough to feed itself," said BofA's Blanch. "That's why oil prices abroad are elevated and why gasoline, which is pegged to oil prices, are so high."
The EIA expects crude oil prices to fall this year, which should keep a lid on gas prices. Still, the agency expects average gas prices to rise by 3 cents during the June—August period compared with the same quarter last year.
The latter may come as another blow to consumers, many of whom are hard pressed to see material benefits in the U.S. shale surge when retail energy costs are still so high.
"For now, the shale boom may not be helping consumers directly by pushing [gas] prices lower," said Blanch. Still, the oil and gas renaissance can alleviate energy inflation while creating economic benefits, like more jobs, he added.
More from CNBC
In the U.S. and Canada, yes, there is a big shale revolution going on…but the rest of the world is not producing enough to feed itself," said BofA's Blanch. "That's why oil prices abroad are elevated
ABROAD?? Guess that is a misnomer......gas prices are high because of market GREED
drink the koolade
BULL MANURE-----And I say based upon the annual Bonuses a few at these Oil Corps receive in addition to their 7-8 figure salaries!
Nice excuse but it fails to Cut the Mustard!!!!!!!!
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
ABOUT SMART SPENDING
LATEST BLOG POSTS
Occupy Wall Street bought and forgave the student loan debt of more than 2,700 Everest College students.
VIDEO ON MSN MONEY
BLOGS WE LIKE
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'