A few days ago, our in-house natural resource expert Sean Brodrick held a private teleconference with billionaire energy investor, T. Boone Pickens. And on their call, they discussed the future of energy in America. So I’ve asked Sean to share some of those insights with you today. Read on for his thoughts on why the current energy situation here in the United States is in need of an immediate overhaul. — Martin |
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It’s making many Americans so angry they’re ready to bite chunks out of their steering wheels. As a nation, we’re driving fewer miles. We’re using less gasoline. So why, WHY is the price of gasoline going so darn high?
Well, here are some facts that should set your teeth on edge …
Fact #1: Americans are driving a LOT less. According to the Department of Transportation, vehicle miles driven dropped 1.3 percent year-over-year in December, and miles driven are down a big 6.3 percent since the peak in June 2005. What’s more, since the U.S. population is going up, that makes this drop more telling than many people realize.
Fact #2: Gasoline Use Has Plummeted. In fact, U.S. retail gasoline demand last week fell 6.5 percent from the same week in 2011.
Fact #3: Refinery Capacity Is Going Up. That’s right — even though a new refinery hasn’t been built in the U.S. since the 1970s, refining capacity in the U.S. continues to rise, with a 0.8% year-over-year gain to 17.7 million barrels a day just in December of 2011 alone.
Bottom line: Not only do we have less demand, we have more supply. So prices should definitely go down, right?
Except prices are NOT going down.
Here Are the Forces That Continue to Drive Up Our Gasoline Prices in the U.S. …
Force #1: Foreign Demand. The drop in gasoline and diesel demand is restricted to more developed countries — the U.S. and large parts of Europe. In the emerging markets, including Brazil, China, the rest of Asia and South America, demand for motor vehicle fuels — diesel and gasoline — is booming.
So U.S. refiners are doing what any smart businessman would do — they’re taking the gasoline and diesel they produce and shipping it overseas!
Take a look at this chart below and you’ll see what I mean …
Exports of refined petroleum products are up 300 percent from 1992. And this is happening when foreign imports of crude oil have dropped from 60 percent of U.S. consumption to 45 percent last year, according to U.S. Department of Energy.
In fact, in 2011, the U.S. became a net exporter of gasoline, diesel and other fuels for the first time since 1949. Another jaw-dropper: Refined petroleum products were the top U.S. export in 2011, even more than cars and airplanes.
Gasoline is a fungible commodity; it can be traded around the world. And now you’re competing with drivers in Canada, Mexico, Europe, Brazil and China for every gallon of gasoline.
It’s going to get worse! China alone will be adding 125 million cars to its roads over the next five years, with auto production targets of 30 million annually by 2016. That’s a lot more demand down the road.
Force #2: The Drumbeat of War. There is a certain subset of American politicians that seem to be itching for war with Iran. Now, they could just be playing to their base for political ends, and I understand that. But did you know that Iran is also having the run-up to an election? And sure enough, their politicians are playing to their base by bashing “The Great Satan” America. All this bellicose yahooing is inching us closer and closer to war.
I would hate to see another war break out. But big users of oil and small speculators alike aren’t taking any chances. Money managers recently bought a record net long exposure to oil through futures contracts that effectively control 638.8 million barrels of oil. That’s essentially double the usual bullish exposure to oil in the markets!
And if a real shooting war with Iran actually begins?
In that case, you could see oil prices hit $130 … $140 … or more in a hurry. Heck, if the Iranians blockade the strategically vital Strait of Hormuz — through which 20 percent of the world’s supply of crude oil must pass — then $140-a-barrel oil might seem downright cheap!
And even if we see a cool-down in Middle East, we still have another force to contend with …
Force #3: Oil Supply Is Barely Keeping Up With Demand. The IEA said in its monthly market report that it expects oil demand to increase 800,000 barrels a day, to 89.9 million barrels, in 2012.
And that’s just the tip of the iceberg. Heck, Chinese demand for imported oil is expected to grow and grow until it surpasses U.S. import demand by 2020. To fill that Grand-Canyon-sized gap we’d have to find a few more Saudi Arabias … and that’s not likely.
Now for the Good News … and the Great Investment Opportunity Ahead!
The Saudi Arabias of the world have us over a barrel (of oil) right now. Because although U.S. oil production is rising, it’s not enough to replace the high-cost crude we buy from OPEC.
And if you think $4 a gallon is high, just get out of your car and push it for 20 miles. I think you’ll find you’ll pay a LOT more for gasoline if you have to.
The good news? There are alternatives. And in fact, I recently spoke to legendary oilman T. Boone Pickens about one of those alternatives — natural gas.
Both Mr. Pickens and I think natural gas can provide an immediate solution to some of the problems with oil as I described above. And more importantly, we also believe select natural gas investments can hand you substantial profits in the near-term, too.
So if you have yet to investigate this corner of the natural resource world, I encourage you to do so now!
Yours for trading profits,
Sean
{ 8 comments }
Sean
It could be worth your while to visit a large truck repair shop and ask about how great the new truck technology is. Specifically, ask about pollution control equipment and after market stuff made outside of the US. Expect worse mileage, low dependability, high costs. It is one more big reason to move to CNG.
Ed
The price at the pump of gasoline in Europe is at least double the price in the USA. In the not too distant past, it has been as much as triple the price. Yet Europe and Europeans survive. No riots in the streets. No heated arguments between the different political parties. How can that be?The difference between the US and Europe is of course gasoline tax. Europeans know this and still do not riot. They realise that there must be taxes: you may get hit directly or indirectly, but you will get hit. Europeans may or may not realise that a gasoline tax helps to discourage (1) crude imports and (2) carbon emissions; or that income tax cuts can encourage people to work harder (not just the billionaires). Do some rough sums for a dollar for dollar switch from income tax to European level gas taxes. It is impressive.
the problem is, our INCOMES don’t go up with that gasoline tax – and we still have to pay exhorbitant prices for healthcare. Where is the balance? What DO we get for that higher price? I work hard, trust me, and I do NOT have an expensive lifestyle, but we need 2 incomes to stay in our modest house. There has to be a compromise somewhere. Yes, I would be glad to pay more at the pump if me and everyone I know wasn’t hit so hard just trying to stay healthy.
Lisa – In many countries around the world, they too pay a very high price for healthcare, it’s not just the US. It is a myth too that healthcare is free in the EU because it is not! This is one reason why the taxes over there are practically double to what they are in the US. For example, I know sales tax averages out at 17% in the UK and has been that way for about 20 + years – it was at 15% for many years, then went up to 17%. .People would go balistic if the US sales tax got anywhere close to 17%.
Honestly Lisa – the US has never has it so good – even now!
America needs to STOP whining about the price of gas. There are many countries on this planet who pay more than double per gallon to what America does and has done so for decades.
America has never had it so good, so stop your whining, please!
Sean; You’re missing one other very, very important factor: Inflation! All of those QE dollars are now coming home to roost. I’ve only seen one analysis compute the anual increase of gas due to inflation. Please check the fuel cost by accounting for the devauation of the dollar and see if inflation is the real culprit??
I agree that America has had it SUPER easy. We still have it very cheap, compared to other countries.
However, America is a large country and nearly everyone drives, a lot of miles, often. Not to continue the “whining” by any means, but I think that if gasoline prices in America were to hit 6/7/8 dollars a gallon, taxes or not, that a lot of everyday luxuries we take for granted will no longer be available to us.
We (America) have dug ourselves into a hole over the past 100 years, spoiled by cheap fuel.
Debauch the dollar and we get pricked with our central bank’s pitch fork. Oil is priced in dollars….. I am surprised this was not an additional key reason we are paying higher prices for gas.