Energy Prospectus

NEW YORK (AP) -- Energy prices dropped Thursday after the government said oil and natural gas supplies fell less than expected last week.

Benchmark crude for February delivery dipped to $89.02 but had rebounded to $89.70 at the time of this post. It was the first time in a week that oil was below the $90 mark.

Oil has been surging for most of December as U.S. petroleum consumption ticked higher and traders looked forward to 2011, when oil is expected to touch $100 per barrel and perhaps go higher.

Rising oil prices have pushed gasoline pump prices higher. They were up again on Thursday. The national average for a gallon of regular hit $3.07, about six cents higher than a week ago and 45 cents more than a year ago. Drivers across the country pay a range of prices at the pump. In California you'll pay about $3.32 a gallon. In New York gas goes for around $3.30 a gallon. The average is $2.91 in Texas and $2.82 in Colorado.

Some analysts think the national average will hit $3.75 by spring.

The price of benchmark crude tumbled Thursday after the Energy Department's Energy Information Administration weekly supply report. The EIA said oil supplies declined by 1.3 million barrels last week. A drop in supplies often supports higher prices, but analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., thought the drop would be bigger -- around 3.2 million barrels.

Investors worried that the report showed demand for energy was not picking up, despite positive economic news. The Labor Department on Thursday said the number of people applying for unemployment benefits fell to 388,000, the lowest level in almost two and a half years.

Meanwhile, Freddie Mac said a fixed-rate 30-year mortgage rose to 4.86 percent, the highest since May. That raised concerns about whether higher mortgage rates would slow the recovery of the housing market.

The EIA also released its weekly report on the nation's natural gas supplies, which showed they shrank by 136 billion cubic feet. That's less than analysts expected and a relatively small dent in total supplies of more than 3.2 trillion cubic feet, eight percent above the five-year average. Milder weather across most of the country over the next 10 days should reduce heating demand and keep a lid on natural gas prices.

On the Nymex, natural gas fell 1.6 cents to $4.271 per 1,000 cubic feet. In other energy trading, heating oil gave up 4.57 cents at $2.4758 per gallon. Gasoline lost 1.59 cents at $2.3745 per gallon.

In London, Brent crude fell $1.61 to $92.53 per barrel on the ICE Futures exchange.

"Investors worried that the report showed demand for energy was not picking up, despite positive economic news.....". Bit hard to figure that out considering the report had total product demand up 6.1% over the past four weeks, gasoline up 2.9% and distillates up 4.9%. Personally I'd be delighted to see crude trade in the $80 to $90 range for the next few months.

Adam

Adam is right. If oil prices get too high it will "kill the Golden Goose".

It appears to me that there is support for oil at $87/bbl and very strong support at $81/bbl. If the price stays over $87 next week the next run could take it up to $95/bbl.

Oil closes at over $91/bbl.
http://www.bloomberg.com/news/2010-12-3 ... pples.html

It is very bullish for oil that it bounced off the mild support level at $89/bbl. There is strong support at $87/bbl and VERY STRONG support at $81/bbl. It would take some major bad economic move to push oil below $80/bbl.

Wall Street is expecting $100/bbl. I believe it will be a self-fulfilling prophecy as the traders will take it there early in 2011.

I believe oil will test the $87/bbl support next week. If that holds, it could move over $95/bbl by the end of January.

Regardless, I think $80 will hold no matter what. All of my forecasts are based on $80 oil and $4 natural gas.

NEW YORK (AP) -- The price of oil is poised for another run at $100 a barrel after a global economic rebound sent it surging 34 percent since May. That could push gasoline prices to $4 a gallon by summer in some parts of the country, experts say.

Flying, shipping a package and ordering a pizza all likely would get more expensive in the new year if that happens and companies pass along higher energy costs. Some economists say rising energy prices will slow economic growth.

The U.S. is the world's largest oil consumer, but prices since spring have been on a roll primarily because of rising demand in developing countries, especially China. China's oil consumption is expected to rise 5 percent next year; that compares with less than 1 percent growth forecast for the U.S.

Benchmark oil for February delivery rose $1.54 on Friday to end the year at $91.38 per barrel on the New York Mercantile Exchange. It reached $92.06 earlier in the day, the highest since Oct. 6, 2008. Nationwide gasoline pump prices now average $3.072 per gallon.

Gasoline expert Fred Rozell predicts that 15 states -- including Alaska, Hawaii, Connecticut and Rhode Island -- will see gasoline prices top $4 a gallon by Memorial Day. "A dollar more per gallon isn't that much -- probably about $750 more per year for each motorist, but there's a psychological aspect to gas prices," he said. "People are going to be up in arms about this."

Higher oil prices have fattened oil company profits. Excluding BP PLC, the four other major investor-owned oil companies posted combined profits of $59.7 billion in the first nine months of the year, a 49 percent increase from the year before. Exxon Mobil Corp., Royal Dutch Shell, Chevron Corp. and Total SA are expected to earn $81 billion for the full year.

The fifth oil giant, BP, was held responsible for the largest offshore oil spill in U.S. history and booked $39.9 billion in charges related to the disaster. Excluding special expenses like the Gulf of Mexico spill, analysts say the company will still earn $20.2 billion in 2010.

"There's nothing this industry can't survive," Oppenheimer & Co. analyst Fadel Gheit said.

The price of energy and other commodities shifted into high gear in late August when Federal Reserve Chairman Ben Bernanke signaled that the central bank was prepared to

stimulate the economy by buying government bonds. The $600 billion program didn't start until November, but speculators had already starting bidding up the value of asset classes like oil.

A further oil price spurt came in late November as it became clear that Congress was likely to extend for two more years tax cuts set to expire at the end of the year.

The Organization of Petroleum Exporting Countries is capable of raising output, if it needs to, by more than five million barrels per day. Still, Morgan Stanley estimates that the rising energy needs of China and other emerging economies will consume about half of that amount over the next two years. That could create supply pressures similar to those that preceded the price spike of 2008, when oil soared to $147 a barrel.

John Hofmeister, former president of Shell Oil and author of "Why We Hate The Oil Companies," predicts Americans will pay $5 per gallon for gasoline by 2012. Other experts say that's a long shot.

"That means oil close to $200" per barrel, analyst and trader Stephen Schork said. "We can see it, but we could also see a global depression, too."

In other Nymex trading Friday, natural gas for February delivery rose 6.7 cents to settle at $4.405 per 1,000 cubic feet. Unlike oil, natural gas prices are less than half where they were in 2008. That's due largely to the technological advances that allowed energy companies to unlock huge deposits in underground shale formations in the U.S.

Heating oil for January delivery rose 5.83 cents to settle at $2.5437 per gallon and gasoline for January delivery added 6.14 cents to settle at $2.4532 per gallon. In London, Brent crude increased $1.66 to settle at $94.75 per gallon.

From: "Energy & Capital"
Gasoline prices averaged $2.76/gal last year.
Gasoline prices rose $0.50 per gallon from August through December, and are now firmly averaging above $3.00 nationwide.
We'll see $4.00 by the time summer vacation rolls around.
To offset the pain at the pump, you'll need to dance with the devil himself. Betting on higher oil and gas prices is the only way to hedge against them.
And because of continued contango in the futures market, you'd be better served to put your money in oil companies.
Why? Because even though oil finished 2010 at a 26-month high and pump prices averaged $0.53 higher than the year prior, the United States Oil Fund (NYSE: USO) actually went down 3%.
But oil ETFs that held oil companies — majors, drillers, rig renters — averaged 20% upside. That's twice the return of the Dow last year.

And finding the right individual oil companies will prove even better this year as oil marches back toward triple digits.
This is why you pay me the big bucks. - Dan