Tags: Schork | Gasoline | Summer | five | dollar

Energy Expert Schork: $5 Gasoline Likely to be a Summer Bummer

By    |   Thursday, 01 Mar 2012 02:04 PM

Gasoline prices will top $5 a gallon for a good chunk of the country by summer, says commodities research analyst and trader Stephen Schork.

U.S. oil prices are currently trading around $107-$108 a barrel but that price is the one quoted on futures markets, such as at the New York Mercantile Exchange.

Physical crude changing hands in the real world is often much higher, and as prices climb, expect more pain at the pump soon in the United States.

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"What I think is most troublesome is listening to the Wall Street pundits that keep on discussing the price of crude oil at $105 a barrel. That is the price being quoted on the futures market on the New York Mercantile Exchange," Schork told Newsmax.TV in an exclusive interview.

"Unfortunately, that doesn't reflect the actual cost of crude oil when you factor in the physical and the differential between the NYMEX price and the real price of oil, which is now upwards of $130 a barrel," Schork adds.

"So we are not quite there yet to see a national average of $5," he says. But he warns that "some markets, mainly in the Northeast and in the Pacific — Northern California — will see $5 sometime this summer."

Editor's Note: Wall Street Insider Exposes Death of Main Street America

The problem with high crude oil prices — the result of fears that Middle East unrest will lead to war and threaten supply — is they eventually threaten the economy.

When gasoline reaches $3.50 at the pump, consumers don't like it but they can handle it, Schork says.

After $3.50 a gallon, consumers change their behavior and buy less fuel or carpool.

Therein lies the problem. Refineries lose customers and revenue as consumers pull back although the price of crude stays high, so the refineries close instead of staying open and losing money.

"At $4 we start to see significant demand destruction," Schork says.

"Demand is weak and it will get weaker and at this point, we are looking at a significant energy tax for the average American consumer this summer," he warns. "And that should have a deleterious impact on future economic growth in this country."

The government has few tools to combat the problem with rising fuel.
One involves dipping into the Strategic Petroleum Reserve, a stockpile of crude designed for use for emergencies.

President Barack Obama did that last year, and the market is suspecting him to do so again, as high gasoline prices are unpopular in an election year.

So surprising the market with such a move won't work. And on top of that, there's not enough crude in the reserve to keep the country going for more than 80 days or so.

"The market would certainly be skeptical of the move. We did it last year and it worked. It worked last year because no one was expecting it. This year, everyone was expecting it and prices are still going much higher," Schork says.

"I'm fearful that the only way we are going to see a pullback in oil prices is by economic contraction, and further erosion of demand."

Pipeline effect

President Obama recently moved to halt expansion of the Keystone pipeline project that would have brought more cheap Canadian oil south into the United States.

This year, a pipeline that takes oil from the Gulf of Mexico region up north — the Seaway Pipeline — is due to reverse the flow.

Pipeline operator Enbridge is reversing the flow today, which may give the market some relief.

"So unlike last year when we took from the Gulf of Mexico up to Oklahoma, this year we're going to take barrels from Oklahoma — those cheap Canadian, North Dakota barrels — and take it to export markets to the Gulf of Mexico," Schork says.

"There is a way to be able to barge that cheap oil once it gets to market in June down in Houston — you can barge it around or simply manufacture that cheap oil into product and then ship it either through the Colonial Pipeline up from that region up to Linden, New Jersey, or barge it around Florida and bring it up the East Coast."

With that oil coming onto market, coupled with Libyan oil lost during last year's civil war back on, supply isn't under siege.

Furthermore, Iran isn't likely to make good on threats to cut off supply in that it needs the petrodollars to operate and refines very little gasoline and other derivatives — the country is largely a crude concern.

Should Iran make good to cut off supply to the West, China and India would remain the sole buyers and enjoy a unique position to dictate lower prices to Iran.

Fear of conflict is driving up price.

"So unlike last year, where we lost very high-quality Libyan oil and we did not have access because of the Seaway pipeline to Canadian oil, the supply situation was much more dire in real time. This year it's all on speculation or perception of potential loss of Iranian oil," he said.

"That could only mean a fear of conflict with Iran."

Editor's Note: Wall Street Insider Exposes Death of Main Street America

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