Tag: "oil prices"

Obama Announces $98.1 Billion More Transportation Spending Waste

A major portion of the Administration’s proposed new transportation spending — 21st Century Clean Transportation Plan — is a series of proposals to expand transit systems (31 rail, bus and streetcar systems in 18 states costing $3.5 billion), revive the failed high speed rail initiative, modernize freight systems and provide grants to regional authorities to implement innovative “clean” technologies and “green” transportation programs. This new transportation spending is expected to cost $98.1 billion in just FY 2017.

The President just recently signed a groundbreaking transportation bill — the Fixing America’s Surface Transportation Act or FAST Act — that gave a longer temporary partial solution for the nation’s transportation infrastructure. However, the Fast Act and the new transportation proposal both fail to address several key problems with the Highway Trust Fund and the federal gas tax.

The new administration budget for transportation is a 60% increase over the current annual spending level. To partly pay for the new spending, the Administration is calling for a $10 per barrel tax on oil or a 25 cent/gallon increase in the price of gasoline at the pump which is estimated to bring in $650 billion over a decade.

Despite this, the administration’s budget request was declared dead even before its arrival on Capitol Hill, just like most of Obama’s previous transportation budget proposals.

 

Feb 24, 2016 | 1 comment | by

Close to Lifting the U.S. Crude Oil Export Ban

Congress is planning to vote on lifting the ban on U.S. crude oil exports by the end of this month. Across the aisle, most Republicans support the end of the export ban. In fact, the Republican-controlled House is scheduled to vote on legislation that would lift the restrictions. In the Senate, Majority Leader Mitch McConnell said for the first time he supports lifting the ban.

Congress passed the ban after the 1973 Arab oil embargo, which sent gas prices soaring. Now, the “shale revolution” has stimulated tremendous domestic oil and natural gas production, thanks mainly to hydraulic fracturing and horizontal drilling methods. The Obama administration has permitted exports of some exchanges of oil with Mexico and federal policies permit exports of crude oil to Canada.

The EIA projects the U.S. will eliminate net energy imports sometime between 2020 and 2030. Rising oil prices would mean the U.S. reaches this landmark turning point sooner, but even low prices are unlikely to stop the swing from importer to exporter. The U.S. has been a net importer of energy since the 1950s.

Opponents of lifting the ban include former Secretary of State and presidential hopeful Hillary Clinton who said she would only support lifting the U.S.’s 40-year-old ban on oil exports if it was part of a broader plan that included concessions from the oil and natural gas industry. The United Steelworkers, which represent workers at several Louisiana refineries, contends that lifting the ban would jeopardize U.S. energy security and adversely affect gas prices.

The controversy over whether or not to lift the ban centers around fears that no ban could mean higher gasoline prices held by some Democrats and consumer groups. Further, environmentalists worry lifting the ban would lead to more oil & gas exploration and development. Even, President Obama opposes such legislation.

However, a recent Government Accountability Office review noted wide agreement among analysts that allowing crude exports would tend to decrease international oil prices, which is the way to depress gasoline prices. That is why analysts predict that lifting the export ban would increase U.S. crude oil prices by $2 to $8 per barrel but reduce U.S. gasoline prices by 1.5 cents to 13 cents per gallon.

Another recent report by the United States Energy Information Administration says that although unrestricted exports of U.S. crude oil would either leave global crude prices unchanged or result in a small price reduction compared to parallel cases that maintain current restrictions on crude oil exports, other factors affecting global supply and demand will largely determine whether global crude prices remain close to their current level.

Sep 21, 2015 | 1 comment | by

New Study Looks at Lifting the Crude Oil Export Ban

According to a new report out from the United States Energy Information Administration:

Recent increases in domestic crude oil production and the prospect of continued supply growth have sparked discussion on the topic of how rising domestic crude oil volumes might be absorbed, including the possibility of removing or relaxing current restrictions on U.S. crude oil exports.

Current laws and regulations allow for unlimited exports of petroleum products, but require licensing of crude oil exports.Through the first five months of 2015, crude oil exports averaged 491,000 b/d. In addition, exports of processed condensate through the first five months of 2015 are estimated to have reached an average of 84,000 b/d.

  • The discount of West Texas Intermediate (WTI) crude to North Sea Brent, the latter a key marker for waterborne light crudes, is expected to increase to more than $10/b in cases where current crude oil export policy is maintained and domestic production reaches or exceeds about 11.7 million b/d by 2025.
  • In cases where the Brent-WTI spread grows beyond $6/b–$8/b, removal of current restrictions on crude oil exports would result in higher wellhead prices for domestic producers, who would then respond with additional production.
  • Petroleum product prices in the United States, including gasoline prices, would be either unchanged or slightly reduced by the removal of current restrictions on crude oil exports.
  • Combined net exports of crude oil and petroleum products from the United States are generally higher in cases with higher levels of U.S. crude oil production regardless of U.S. crude oil export policies. However, crude oil export policies materially affect the mix between crude and product exports, particularly in the HOGR and HOGR/LP cases, which have high levels of domestic production.
  • Refiner margins (measured as the spread between crude input costs and wholesale product prices), which tend to increase as the Brent-WTI spread widens, would be lower without current restrictions on crude oil exports than with them in high-production cases where export restrictions lead to a widening Brent-WTI spread.

Although unrestricted exports of U.S. crude oil would either leave global crude prices unchanged or result in a small price reduction compared to parallel cases that maintain current restrictions on crude oil exports, other factors affecting global supply and demand will largely determine whether global crude prices remain close to their current level, as in the Low Oil Price case, or rise along a path closer to the Reference case trajectory.

Sep 09, 2015 | 1 comment | by

Increased Energy Use Raises Standard of Living in Developing Nations

Global production of oil and natural gas has increased in recent years, and prices have been falling.  This is not only good news for consumers in developed countries, but also for the poor in developing countries around the world.  Increased energy use is essential in developing countries if they are to raise the living standards of the poor and grow the middle class.  Even rapidly growing economies use much less energy than developed countries.  For instance, India uses one-tenth as much energy per person as the United States and, despite decades of rapid economic growth, China still uses only one-third as much energy per capita.  [See the figure.]

jaiwin fossil fuel

 

Special contribution by NCPA research associate Jiawen Chen. 

Aug 24, 2015 | Leave a Comment | by

Lifting Crude Oil Export Ban Benefits U.S. Economy

The Government Accountability Office (GAO) suggests that removing crude oil export restrictions could both reduce consumer fuel prices and increase the price of U.S. crude oil from ~$2 to ~$8 per barrel.

Regulations implemented 40 years ago are being reviewed as technological advances in the extraction of crude oil from shale formations, commonly known as hydraulic fracturing or “fracking”, have contributed to increased U.S. oil production. In recent years U.S. crude oil prices have been lower than international prices but removing export restrictions could generate more revenue for oil companies and cause international crude oil prices to decrease.

If, as estimated, international crude oil prices do decrease, consumers could see anywhere from 1.5 to 13 cents per gallon drop for refined oil products such as gasoline and diesel. However, experts cautioned that estimates of the price implications of removing export restrictions are subject to uncertainties and there could be important regional differences.

Additionally, removing crude oil export restrictions could benefit in the following areas:

  • Economy: Removing export restrictions would lead to increased investment in crude oil production and increases in employment. This could result in additional positive effects for employment and government revenue.
  • Industry: Increased domestic production of crude oil will result from eliminating current export restrictions. Estimates range from an additional 130,000 to 3.3 million barrels on average per day until 2035.

After decades of generally calling U.S. crude oil production, from 2008 through 2014 production increased by about 74%. Perhaps, lifting the restrictions on crude oil could help both the economy of the U.S. and the average consumer.

Aug 12, 2015 | Leave a Comment | by

The Changing Price of Oil Relative to Gold

It is true that a shift in supply or demand will change prices in any market; however, not all market-price movements are necessarily due to a change in market supply or demand — especially in the case of prices for commodities as highly political as crude oil. Longer term trends in the price of oil also reflect cumulative changes in the purchasing power of the dollar. Looking at oil prices relative to gold prices instead of U.S. dollars takes account of the long-term decline in the value of the dollar and allows us to recognize more clearly the effect of supply, demand and public-policy factors that influence the price of petroleum.

The long historical tendency for the price of crude oil to parallel the price of gold and other precious metals is well known. As a whole, the trend is toward an average annual increase in the oil-gold price ratio through 2014 of 1.1 percent. The long-term increase is attributable to:

  • The slowly increasing scarcity of crude oil.
  • The fact that the cost of exploiting crude oil reserves has risen faster than the cost of exploiting gold reserves.
  • The growth of market forces that also govern the relative flow of capital into the oil and goldmining industries.

If it takes two years to half-close the gap in current oil prices compared to the equilibrium price suggested by the table, it would be reasonable to expect the price of crude to rise at an annual rate of about eight dollars a barrel over the next 12 months.

Source: R. David Ranson, “The Changing Price of Oil Relative to Gold,” National Center for Policy Analysis, July 27, 2015.

Aug 05, 2015 | Leave a Comment | by

Mexico Opens to Big Energy

For the past 55 years, Mexico has prohibited private companies from owning any of its oil and natural gas production. The national oil and gas company PEMEX, once a major international energy player, has been reduced to an irrelevant player due to the government’s ever increasing and frequent siphoning of funds from PEMEX. The demise of PEMEX and the rise of the reform minded President Enrique Pena Nieto opens the door to changes to the Mexican constitution now allowing big energy companies to purchase oil and natural gas land.

Mexico’s break-even costs are low:

  • Deep water production is $50/bbl or lower.
  • Energy output from Mexico’s deep water could be transported to the U.S. by existing infrastructure.
  • Mexico is far more stable than the Middle East.

Mexico is currently 10th in oil production and opening the country up to big energy will greatly benefit Mexico and the world energy market.

Jul 13, 2015 | Leave a Comment | by

U.S. Now Top Oil Producer

The United States has officially surpassed both Saudi Arabia in terms of crude oil production. In 2014, the U.S. had already exceeded both Russia and Saudi Arabia in hydrocarbon, oil and natural gas, production. The U.S. Energy Information Administration (EIA) recently predicted that such high production is likely to continue into the future, with an expected 9.4 million barrels a day this year and 9.3 million barrels a day for 2016.

Adam Sieminski, U.S. EIA administrator, said:

Despite the large decline in crude oil prices since June 2004, this May’s estimated oil output in the United States is the highest for any month since 1972.

U.S. producers have managed to maintain production levels by becoming more efficient and generating new cost savings. Lower prices have led to many labor cuts, with a loss of nearly 100,000 energy-related jobs. Some companies have cut up to 40 percent of their service and supply crews. By April 2015, only 750 rigs were still in operation compared to 1,596 in October 2014.

Industry insiders were not surprised by the EIA report and had previously expected production to keep steady while the growth rate slowed. With prices hovering around $60 a barrel, shale oil exploration is still profitable and will continue be an important source of production.

The Organization of Petroleum Exporting Countries’ (OPEC) plan to cut prices and hurt high-cost U.S. shale producers, however, remains unchanged. On June 7, OPEC announced it would keep production levels unchanged despite pressure from countries within the organization to lower production and increase price.

Fawad Razaqzada, a technical analyst at the trading website FOREX.com, commented on OPEC’s influence saying:

The cartel is losing some influence to the U.S. shale oil market and to a lesser degree Russia, but it still remains a dominant force ― just not as powerful as before.

 

Jun 15, 2015 | Leave a Comment | by

The Obsolete Crude Oil Export Ban

In the 1970s, during the Arab oil embargo, gasoline prices soared in the United States. Shortages created long lines of cars at the few gas stations that had fuel. In response, the U.S. began a series of policies that focused on its limited supply and high demand for oil. Policies included efforts to build up the oil reserves, reduction of oil imports and stabilization of the fuel prices. However, by the 1980s and 90s, oil imports to the U.S. were the highest ever and gas prices remained very volatile.

One particular policy was the Energy Policy and Conservation Act by President Ford in 1975. The act established a Strategic Petroleum Reserve, supporting an emergency storage of oil up to 727 million barrels and would last close to 160 days at a maximum withdrawal of 4.4 million barrels a day. The act also permitted the President to restrict exports of energy resources, such as crude oil:

Permits the President to restrict exports of coal, petroleum products, natural gas, or petrochemical feedstocks, and supplies of materials or equipment for exploration, production, refining, or transportation of energy supplies. Authorizes the President to exempt crude oil and natural gas exports from such restriction where he deems such exemption to be in the national interest, such as in recognition of the historic trading relations with Mexico and Canada.

The recent hydraulic fracturing boom, along with the discovery of vast amounts of oil deposits, has changed our domestic energy situation. For the first time since the 1960s, the United States is close to becoming energy independent. Therefore, many of the current policies of the 1970s are now obsolete.

Apr 13, 2015 | Leave a Comment | by

Gas Savings Conundrum

Families planning road trips this summer, rejoice: According to a new estimate from the U.S. Energy Department, drivers can expect to see the lowest summer gasoline prices in about six years.

Before you head out to buy a gas-guzzling SUV, be forewarned: falling gas prices might not be as good for your pocketbooks — or the economy — as you might think. Low oil prices have slowed job growth, shut down drilling operations, and taken money out of the markets.

Texas, which produces 11 percent of all goods made in the United States, saw its slowest job growth since 2011 and lost 9,500 manufacturing jobs. Across the nation, the U.S. oil rig count, which is commonly used as a barometer for the oil industry, has lost 164 rigs over the past four weeks, adding onto the 276 rigs closed in February. In Texas alone, the oil industry lost 3,500 jobs in February and 4,300 in January. This 7,800 job loss is the sector’s biggest job loss since 2009.

While the industry struggles, many citizens have been celebrating. A poll run by the Iowa-based Principle Financial Group reports that while forty percent of U.S. residents are using the gas-induced savings to pay routine expenses, 54 percent are using the money to pay off debt or grow their savings accounts.

Fifty-four percent of the money consumers are no longer spending on gasoline is vanishing from the markets, along with manufacturing and oil industry jobs. These troubling conditions raise troubling questions: How can we encourage people to invest their gas savings back in the market? What can companies do to adapt to these continuing, low oil prices? How long can these low oil prices keep up, particularly if the Obama administration lifts oil-related sanctions against Iran?

Apr 08, 2015 | Leave a Comment | by
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