Summer time heralds warm weather, beach outings, barbeques and vacations. But it usually ushers in higher prices at the pump as well. This season, however, the expected uptick at the pump may not materialize, in what may be a favorable outcome for our wallets, but not so much for gas exchange traded funds (ETFs).
According to Pablo Gorondi, Alex Kennedy, Holbrook Mohr and Alan Sayre of the Associated Press, the price of oil fell by more than 10% during the week before Mother’s Day. Gasoline futures also fell sharply, which could soon be reflected in lower prices at the pump.
A barrel of crude oil settled at $75.11 on Friday- the lowest spot price since mid-February. [MLP ETNs: Another Source of Income?]
Even with hundreds of thousands of barrels of crude oil spilling into the Gulf of Mexico, the government reported a build of 2.52 million barrels of oil in the region. A report from energy consultancy Cameron Hanover states, “The implication here is that the Deepwater Horizon spill is having no tangible impact on imports and even if it does, stock levels can comfortably absorb any knock-on shocks.” [Oil Spill Puts Oil ETFs in Focus.]
Of particular concern is the potential shutdown of the Louisiana Offshore Oil Port at the mouth of the Mississippi because of the oil spill. A shutdown would prevent the importing of 1.2 million barrels of foreign oil that feed half this nation’s refinery capacity. But even in this case, the government could choose to draw from its Strategic Petroleum Reserve to offset any negative economic fallout.
The biggest worry that remains is shipping through the Mississippi’s Southwest Pass, where refined oil is exported in small tankers for U.S. ports. Any interruption in those supplies could ratchet up gas prices. [ETF Strategies for a Natural Gas Rebound.]
For more stories on oil, visit our oil category.
- United States Gasoline (NYSEArca: UGA)
- SPDR S&P Oil & Gas Equipment & Services (NYSEArca: XES)
- PowerShares Dynamic Oil & Gas Services (NYSEArca: PXJ)
Sumin Kim contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.