Natural Gas and Crude Oil: Tensions Over Syria Guide Prices

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The Energy Information Administration released its weekly report on the status of liquid fuels in the United States, covering the week ended September 6. The report covers natural gas and petroleum and presents data about the production, storage, and prices of the fuels.

Changes in the data can reflect natural variations, seasonal trends, long-term market effects, and current events in regions of the globe where liquid fuels are produced, processed, and sold. This week was highlighted by tension in Syria, where the U.S. has temporarily foregone a military strike amid talks of a deal with the country to abolish its chemical weapons program.

Working natural gas in storage — the volume readily available to the market — increased by 65 billion cubic feet in the week ended September 6 to 3,253 Bcf, according to EIA estimates. This is down by 172 Bcf from the same period last year but is at the upper-end of the five-year historical range.

Futures in natural gas have declined in speculation that the report would show an increase in the stores that will exceed the 62 billion cubic rise typical for this time of year. Futures are still below the $4 to $6 range, within which producers can both earn a profit and compete with alternative fuels like coal.

The data show a trend has developed over the past few years. Inventories have been on the rise as domestic production increases, largely thanks to advances in horizontal drilling and hydraulic fracturing technology. These advances have contributed to a revolution in energy production in the U.S., and producers are rapidly helping make the dream of energy independence come true.

Domestic production supplied the U.S. with 84 percent of its total energy needs in 2012, the highest level since 1991. The EIA estimates that the U.S. could become a net exporter of natural gas as early as 2020, assuming regulatory hurdles can be overcome.

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U.S. crude oil refinery inputs averaged about 15.9 million barrels per day during the week ended September 6, with refineries operating at 92.5 percent capacity. U.S. commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, decreased by 0.2 million barrels from the previous week. At 360 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year.

WTI, a grade of crude oil used as a benchmark in oil pricing, was $107.56 per barrel, $1.08 less than last week’s price but still about $10 more than a year ago. Many are concerned about the price of oil because of tension in Syria, though this has been lessened somewhat due to the possibility of a peaceful resolution to the situation. A report from the International Energy Agency via The Wall Street Journal that claimed global demand for oil was on a steady rise also bolstered prices.

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As the EIA put it, “All else equal, changes in gasoline prices follow changes in crude prices.”

For the week ended September 6, the average retail price of a gallon of gasoline in the U.S. was $3.55. This is down 34 cents from the year-ago period, though down a fraction from the previous week. It is also down from the summer-to-date peak of $3.68, hit on July 22.

In August, the EIA projected that oil and gas prices would decline throughout 2014, with regular gasoline approaching $3 per gallon by the end of the year. Thanks to increased production in the U.S. and other non-OPEC countries, prices could very well still continue to decline after some of the dust concerning Syria has settled.

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