A wild week for oil markets leaves crude prices down a bit. After the latest inventory report showed a sizable increase in oil and diesel fuel held in storage, the price of benchmark West Texas Intermediate slipped from $48 per barrel to $43, before rebounding to about $44.50 to end the week. Friday’s lackluster jobs report appeared to give oil markets a lift by reducing the odds of an interest rate hike by the Federal Reserve in September. (Higher interest rates lift the value of the dollar, which tends to depress the price of dollar-denominated crude oil.)
We expect the volatility to continue, but don’t expect a major price move either up or down. There are plenty of factors that can and will buffet the oil market in coming weeks, but barring a big surprise, we look for WTI to continue to trade in the mid-$40s per barrel, and gradually slip to the low $40s by late autumn. Markets remain oversupplied, and the economy isn’t hitting on all cylinders, so it is hard to see prices making a sustained move higher.
The recent run-up in gasoline prices is probably about over. At $2.22 per gallon, the national average price of regular unleaded rose 2 cents from a week ago and is up almost a dime from last month. We look for pump prices to start edging lower now, especially as refiners switch from summer-blend gasoline to cheaper winter formulations. By the fall, the national average could be nearing $2 per gallon. Diesel prices probably will tread water, not changing much from today’s national average of $2.37 per gallon.
Natural gas prices could be in for a bit of a dip as the summer heat starts to fade. Strong demand from gas-fired power plants during this unusually hot summer has kept gas prices at a bit below $3 per million British thermal units (MMBtu). But the arrival of early fall should cool off demand, allowing more gas to build up in underground storage. Unless there is an early cold snap that causes homeowners to fire up their furnaces ahead of schedule, we look for the benchmark gas futures contract to trade between $2.50 and $2.75 per MMBtu in coming weeks.
By: Jim Patterson (Kiplinger).
Photo: Dawn.
Review: Emerging Market Formulations & Research Unit, FLAGSHIP RECORDS.
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