The Energy Report - Summer Fuels Make Me Feel Fine!

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The Energy Information Agency came out with its much anticipated never duplicated Summer Fuels Outlook and it was a market mover. Well not perhaps for the summer fuels so much, but what we really consider a winter fuel, the natural gas market. Of course if prices continue to fall it won't just be winter any more.

The EIA dramatically lowered their second-quarter average Henry Hub spot price prediction by 28.9% to $2.20 per million BTU's. That is down from last month's $3.10 prediction. With the possibility of a dramatic price drop like that, one might expect that this could lower production expatiations as well. Well don't bet on it! The shale gas revolution continues to rewrite the rules as we head towards an unprecedented glut of supply. The EIA instead raised its second-quarter production forecast 2.5%, to 65.86 billion cubic feet per day from last month's estimate of 64.23 BCF and they are also raising their average daily production rate to 65.77 BCF which is a 1.9% increase from their last projection of 64.52 BCF.

Which continues to raise the question I have asked before, where are we going to put it? It seems we are headed for full storage and unless we see an incredible uptick in demand due to a scorching hot summer, we are going to see a crisis in this market. With no storage available the most likely outlook is for a major price collapse to force a production decline. That may l not happen at $2.00 but it may happen at $1.00.

The EIA also said that they expect electricity generation from coal to decline by about 10 percent in 2012 as generation from natural gas increases by about 17 percent. EIA forecasts that electricity generation from coal will increase by about 7 percent and generation from natural gas to fall by 3 percent in 2013 as projected coal prices to the power sector fall slightly while natural gas prices increase, allowing coal to regain some of its power sector generation share. Still not enough to change the wildly bearish natural gas outlook.

The traditional summer fuel blend that we use to think of was gasoline yet the EIA says they expect that demand in the US will continue to be weak. The EIA says that it expects that regular-grade gasoline retail prices, which averaged $3.71 per gallon last summer, will average $3.95 per gallon during the current summer (April through September) driving season, a year-over year increase of 6.3 percent. The projected monthly average regular retail gasoline price peaks this summer at $4.01 per gallon in May. Diesel fuel prices, which averaged $3.94 per gallon last summer, are projected to average $4.21 per gallon this summer, with monthly prices peaking at $4.25 per gallon in the middle of the driving season. Daily and weekly national average prices can differ significantly from monthly and seasonal averages, and there are also significant differences across regions, with monthly average prices in some areas exceeding the national average price by 25 cents per gallon or more.

The high price is killing demand as well as the changing US demand patterns and we are demanding more fuel efficiency. MasterCard Spending Pulse reported that US gasoline demand was down on the week and has fallen 2.4% year over year. They said that gas demand fell 68,000 bpd or 0.8% to 8.799 million bpd during the week-ended April 6, marking a decrease of 2.4% versus the comparable year-ago period, according to data.

The API added to the Fun reporting a whopper of a crude build to the tune of 6.6 million barrels. Hey, I told you that oil would eventually show up in the Gulf Coast. The API reported a crude build of 6.6 million barrels. For gasoline we saw an increase of 1.2 million barrels and for distillates a drop of 476,000 barrels.

A major earthquake near Indonesia at this point does not seem to be moving the market. Stay tuned!

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Phil Flynn
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