What the Heck is Going on at the Gas Pump?

Sean Brodrick

Ouch! Americans are feeling the pinch at the pump as gasoline prices surge.

Prices recently jumped to an average of $3.60 per gallon, according to AAA’s Daily Fuel Gauge Report. This represents the highest level since October.

This is happening even though America’s crude oil production is booming. In fact, the U.S. pumped 7.06 million barrels a day (bpd) in the week ended Feb. 8, up more than 21 % year-over-year.

We are swimming in U.S. crude. But gasoline prices are up more than 12% in less than two months.

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I told you last week (“5 Ways We’re Cashing in on the Oil and Gas Boom”) how gasoline prices aren’t really hooked to domestic oil — it’s international oil that really matters, because the U.S. still imports a lot of the oil we turn into gasoline.

The price of Brent Crude, an international benchmark, is rising. Check out this chart from Bespoke Investment Group …

Source: Bespoke Investment Group

You can see that Brent is rising, and gasoline is going right along with it. This is despite the fact that the International Energy Agency (IEA) just lowered its estimate for global oil demand in 2013 to 90.68 million bpd, down 85,000 bpd from its previous month’s estimate.

The IEA is worried that the global economic recovery isn’t sustainable.

And so, the price of Brent is also rising even though global oil production is up — gaining about 2 million bpd over the past two years.

So What The Heck Is Going On?

A couple of things …


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First, to keep prices high, the Saudis are pumping a lot less oil. Combined OPEC oil production fell to 30.34 million bpd in January, a 52-week low. The Saudis pumped 9.25 million bpd, well-below their capacity of 12 million bpd.

Just remember — the less of the world’s total oil that OPEC supplies, the less power it has.

The other factor is speculation. Yep, speculators are bidding up the price of oil. They disagree with the IEA, and think the global economy is coming along fine. Speculators expect that China’s economic engine is going to kick into gear, grow 8.5% or more this year, and suck down oil by the mega-barrel.

How High Could Brent Go?

The price of Brent crude just broke out to the upside. It recently traded at $117.75, but simple technical analysis gives a target of at least $140 per barrel.

That’s about 19% higher from recent prices, and that’s a fortune to be made in the oil markets. This doesn’t mean it has to go that high —  but the potential is there.

One important point for gold investors —  rising gasoline prices can be seen as an indicator that inflation is heating up. Gold is an inflation hedge.


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Gold mining stocks have been beaten flat in recent months; the action in gasoline is saying it might be time to give them another look.

Now for the Good News

U.S. crude imports have fallen 5.9% so far this year, extending a 21% decline last year, The U.S. met 84% of its energy needs in the first 10 months of 2012, on pace to reach the highest annual rate of self-sufficiency since 1991.

And our per-capita oil use is dropping like a rock  …

Source: EIA, FRED, Business Insider


You can see our use of imported oil is falling quickly. Part of this is efficiency gains and part is because America’s aging population is driving less.

In fact, Citigroup recently released a report saying that the U.S. could become energy-independent — or at least dependent only on our neighbor Canada —  much more quickly than anyone realizes. Citigroup believes that could happen in the next five years.

Sure enough, Canadian oil accounted for less than 16% of all U.S. imports in 2002. It’s growing so rapidly, Canadian oil now accounts for 28%. Canada’s share of our oil supply is only going to grow as more cross-border pipelines are built.

Canadian oil sells at an even-bigger discount to Brent than U.S. oil. The more energy-independent we become, the more likely that our gasoline prices will start to move with domestic oil prices —  and that would be a huge economic boost for U.S. consumers.

How You Can Play Oil and Gasoline Prices

There are funds that let you play the price of oil and gasoline. Some examples  …

United States Oil Fund (USO on the NYSEArca): This is a limited partnership, not a true ETF. It’s very liquid (has a lot of trading volume), which is always important in a fund. While it does track the price of the U.S. oil benchmark, it notoriously underperforms it.

United States Brent Oil Fund (BNO on the NYSEArca): Another limited partnership, this one focuses on the price of Brent crude. It’s not as liquid as the USO.

United States Gasoline Fund (UGA on the NYSEArca): This fund tracks RBOB gasoline prices and has decent volume.

ProShares Ultra DJ-UBS Crude Oil Fund (UCO on the NYSEArca): This is a leveraged fund, tracking twice the daily movement in crude oil. You can use this to bet on oil, but you better be right, because being wrong is oh-so-painful.

Also consider funds that hold baskets of oil company stocks —  the Energy Select Sector SPDR (XLE on the NYSE), the iShares Dow Jones U.S. Oil Equipment Index (IEZ on the NYSE) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP on the NYSE).

Or maybe you’d like to find out about the kind of energy stocks and funds I’m recommending to my Global Resource Hunter subscribers. Many profit opportunities are hidden in global trends and even threats, and I just gave them a specific way to play it in the newest issue that just went out on Friday.

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If you’re doing this on your own, be careful, and do your own due diligence.

Yours for trading profits,


Your thoughts on “What the Heck is Going on at the Gas Pump?”

  1. So in other words, as usual the American consumer gets the shaft!!! Obama is here for change! He did! gasoline was $1.76 when he was inaugurated 4 + years ago and gasoline has doubled! Thank you!

    1. Oil’s days are numbered Jens. It is NOT part of mankind’s future. How could a substance that fouls the air, water, and land, harms birds, animals, and humans, fosters greed and deceit possibly be a part of our future?

      The truth is, IT CANNOT! Oil use will be considered primitive by masses in a time not too far off, and I’m not talking decades. You’ll see.

      1. You are absolutely delusional…….you and I will be long gone and turned to stone before that time occurs. Radical enviro-freakazoids have had their day.

      2. Oil comes from the earth. It is a natural resource. Oil has been in use for well over 100 years. Natural disasters like volcanic eruptions, hurricanes and tsunamis due vast more damage to things residing on the surface of this planet! Easy to throughout generalities and mantras of the leftists. Point to 3 cases where the use of oil has created damage even close to the distruction caused by Hurricane Sandy, Hurricane Katrina, tsunamis, and tornados combined! The combined damage can’t even compare! Overblown stupid fear-mingering to people who don’t think critically have created a hypocracy wherein the main face of Green movement sells his TV station for big sums of OIL money. I’d say Al Gore disagrees with you oil is good for HIS wallet.

  2. A good analysis, but you exclude the impact from new pipelines that will allow wti stocks at Cushing to be shipped to the gulf. This will cause wti and brent to converge. Just as US refiners have been exporting their products, domestic oil producers will sell in the highest markets. The likely outcome is for Brent to be restrained, and probably fall somewhat, not hit some technical peak. This means that domestic prices will be more influenced by world prices, not less.

  3. You write per capita oil use, then present per capita oil import.
    Those are different if domestic production is increasing.

  4. The price of gas has nothing to do with supply/demand. Market manipulation combined with a dying dollar(thru massive inflation) is the reason. BTW, there is no recovery.

    1. robertsgt40, you know that gas prices are a joke. The Powers that Be will cause gasoline prices to be whatever they want them to be.

      All the figures and numbers and charts are useless, meaningless, and a waste of time.

      Oil is on the way out, by the way. It has no part in mankind’s future. It is primitive, ruins the environment, harms health, and was never meant to be on the surface of Mother Earth and burning in mechanical vehicles.

  5. Speculators not only bid the market in oil up, but they have cornered the market. If one guy could corner the cocoa market, then the investment banks find it easy to corner oil futures markets. Great article BTW.

  6. I love the way this article is skewed to the ‘ hardship’ of Americans dealing with ‘ Skyhigh’ gas prices….right now, we’re paying $1.30/litre round my region ( Ontario) that’s $5.20 an Imperial American Gallon. So, please, as a nation that EXPORTS oil to your country at an obscenely discounted rate…spare me your Gas Pump Whining, and get a reality check with what the rest of the world lives with on a daily basis.

    1. The US has over 193 million people with driver’s licenses…Canada has only 22 million. No comparison when it comes to the number of cars on the road. So, seeing how demand and supply does not drive the price of gas, then who and what is behind the price setting?

      If you want to believe Huffington Post, which I always take with a grain of salt…this is their take…

      Gas prices are lower in the U.S. to a large extent because the U.S. subsidizes oil production and levies relatively low gas taxes. Other countries tax gas consumption more heavily, according to Bloomberg. Gas prices are highest in Norway at $9.69 per gallon, where there are large taxes on gas to subsidize free college education and infrastructure improvements.

      Gas taxes in some countries are even higher than the average price of gas in the U.S. The gas tax in Germany is $4.88; in France, it is $5.40, according to AIRINC data cited by The Atlantic.

      Lower prices mean that the U.S. is more exposed to sudden gas price fluctuations than countries with higher gas taxes, according to experts cited by CNN Money. Americans also have grown accustomed to working farther from home because of lower gas prices, making them more dependent on cars, according to CNN Money.

      Gas prices spiked last year because of turmoil in the Middle East and under-regulated speculation by investors…

      In other countries, the taxes are higher, creating higher gas prices…but then again, unlike the US- where our tax money goes to the criminal Federal Reserve, which is nothing but a giant ponzi scheme.

      There is a very simple solution…do what ICELAND did…fire all the politicians, jail the banksters, eliminate the central banking system and hit re-start on the false debt …this is the only way we’re ever going to pay fair prices at the pump, no matter where you live.

      1. Tom Clark……you took the words right out of my mouth! Are you running for office? This Independent is looking for politicians with a lick of sense!

  7. It is interesting to read speculative articles on how oil prices might move, how gold prices might move, how silver prices might move————-but the bottom line is this:

    It’s all just numbers and can change at the drop of a pin.

    So very often, these past 5 years, what most people THOUGHT would transpire did not, but the opposite happened.

    The Cosmic is playing with us and trying to teach us to LET GO of our heavily structured existence, our false value system, our corrupt markets.

    One thing I can say with ALL CERTAINTY is this: Oil, as a fuel, is on its way out! Totally, completely, absolutely!
    Why? Because it is a foul, black, smelly, fluid that belongs deep inside the Earth, not on the surface. Because it pollutes and poisons the environment and harms human, plant, and animal life. And because, if man is to truly progress, he must get beyond the myth that he needs oil to prosper. That is a huge lie foisted on a gullible populace by Big Oil——Big Filthy Greedy Oil. Their days are numbered. Oil, you can be sure, is on its way OUT!!!

  8. Where is Larry Edelstein these days? He must be very busy trying to figure out where to hide all his loot so Obama and the Feds don’t come after it.

    Even overseas is not a safe bet these days, and Larry knows it, that’s why he’s scrambling.’

    “It won’t be long now!” said the cat when he got his tail caught in the wringer. Even Angelo Mozillo must be sweating bullets right about now.

    1. Hi FS — Larry is publishing his Monday update on the Money and Markets side of the house now. But I hope you’ll keep commenting over here. A lot of us really enjoy reading you!

      1. Dawn: It’s not like Larry told anyone he was going over to the Money&Markets. He just disappeared without notice. I think you could at least publish something on UWD to let readers know. Sean is the only one not jumping ship.

  9. Bitch it up, Yanks. Its been over $6 a gallon here since you crashed the world’s economy, and if the collateral damage to the world were to be factored into your at-pump price, it would be a LOT higher. Maybe no more Escalades and Dodge RAMs eh?

  10. Scholmo@DownUnder makes a valid point. So many Americans, sadly, could care less about what carbon footprint they leave on the environment, and will buy, without remorse, the biggest gas-guzzling vehicles they can find and do it with relish.

    While I can understand the need for a huge SUV in the outback or a rugged area, it is hard to fathom why delicate city folk with deep pockets and huge egos need a monster vehicle in the asphalt jungle of a big city with smoothly paved roads and little if any hazards to drive through. If they give the excuse that they have a lot of kids, then there are many smaller vehicles or more economical ones that would do the job.

    It seems ego got the better of many, and the very thrill of bullying others on the road or being able to say, “Mine is bigger than yours” gives them a rush.

    Considering all that, it is INEVITABLE that oil will be abandoned as a fuel completely. It will be considered filthy, ludicrous, polluting, harmful, and primitive by the mass of people very soon as more and more WAKE UP from the mental matrix most are still trapped in.

    And, thanks Sean, for correcting my spelling of Edelstein’s name. :)
    I do find many of your articles insightful, especially the more heart to heart ones, which reveal that you are a man of compassion and values. Your story telling ability is well developed and you aren’t reluctant to reveal personal information sometimes.

    While I may find statistics and charts irrelevant in so many ways, I do understand that those are the traditional tools of you job as an investment analyst and respect that. Best wishes to you Sean!

  11. Well what’s interesting to note here is that I recently returned from Europe and the rental car I was driving (VW) was averaging after my conversion from kph to mph at 78 mpg and then my investigation led that those cars was manufactured in the US and after calling them wanting to buy one they said that those cars could not be bought for US use because the cars did not meet the US’s EPA standards, c’mon, there has to be some kind of agreement between the Car Manufactures & the Oil Companys to SLOWLY gouge the people of the world their hard earned money. It’s this simple, keep oil prices high until the people cry out, then to make the politicians look good they pass a law to so-call force the car manufactures to increase the MPH of their cars, then Oil prices goes up, then MHP goes up. They ALREADY have the technology to give us an ultimate MPH already but they just want to SLOW gouge us to death. $5.00 a gallon wouldn’t be bad at 100+ mph now would it? You don’t need to be a mathematician to figure this one out…

    1. Garrison is totally right. The price of gas is what TPTB (the powers that be) want it to be. They change it at their whim. They manipulate it at their leisure. Sadly, the same is true with the silver, gold, and stock markets.

      The biggest scam is the inverse ETFs that short the precious metals. Larry Edelson really hyped those a while back, and anyone who bought them lost big time. Why?

      The constant up and down movements in short increments in the silver market over a long period of time eroded the ETFs that shorted it terribly. Even if silver drops super low, the ETF is eroded so low that it is doubtful the money lost can be regained.

      Avoid ETFs that short precious metals, I’d say. It seems that the owners of the ETF companies that short the metals are unscrupulous and know that their scheme cannot work for the ETF buyer except in rare circumstances, but does work to THEIR OWN advantage almost always, robbing your money and enriching them.

      Buyer beware!

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