Pull Out The Walking Sticks: Gas Prices Are Going Up

Pull Out The Walking Sticks: Gas Prices Are Going Up

“The average national price of a gallon of gas hit an all-time record high of $3.15 this week. Meaning that wherever you’re going this summer, it might be cheaper to mail your car.” –Amy Poehler (2008)

We might start seeing the reemergence of high gas prices similar to 2008 as we approach the summer driving season. Each day, it seems that the Libyan conflict is going to last longer and longer. This is especially bad for US drivers.

As I mentioned in March’s podcast, Saudi Arabia has stated that they will make up Libya’s output. The problem is Libya produces a sweet crude oil that is highly prized in the oil market. Saudi Arabia produces sour crude oil. It takes three barrels of Saudi sour crude oil to equal the output of one barrel of Libya’s sweet crude.

Libya’s “sweet” crude oil cannot be easily replaced in the production of gasoline, diesel and jet fuel, particularly by the many European and Asian refineries that are not equipped to refine “sour” crude, which is higher in sulfur content. Saudi Arabia has more than four million barrels of spare capacity and has promised to tap it if necessary, but that capacity is mostly for sour grades of oil.

Should the turmoil in Libya last for more than a few weeks, oil experts predict that European refiners will be forced to buy sweet crude from Algeria and Nigeria, two principal sources of sweet crude for the United States. That would  push up gas prices here in the US.

In addition, we are in a seasonally strong time for energy. According to the Commodity Trader’s Almanac, February through May is crude oil’s strongest period. Buying in February and selling in May offers an 85.2% win ratio, with the trade working 23 out of the past 27 years.

Unfortunately, the combination of a strong seasonal pattern (which traders love) and continued disruption in the Middle East, I think we are going to be in for more pain at the pump.

JAPANESE EARTHQUAKE:

I started writing this post before the earthquake hit Japan. Japan is the third largest economy in the world. The massive earthquake and tsunami that struck Japan may have a short term impact on oil prices. Japan’s economy will be shut down for a few days or longer. Their need for oil will drop, until they start rebuilding from the damage.

My thoughts and prayers go out to those who are dealing with this horrible event.


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