Oil and diesel prices will be highest in first few months of 2012, analyst says

By David Tanner, Land Line associate editor | 1/17/2012

The highest prices for diesel fuel and crude oil in 2012 will likely occur during the first few months of the year according to the Oil Price Information Service. The upward pressure on prices has as much to do with diesel demand as with political tensions and a possible oil embargo in Iran.

The year began with the U.S. pressuring other nations to stop importing oil from Iran, and Iran threatening to block Middle East oil routes in return. Prices could be volatile for the next few weeks.

Oil Price Information Service chief oil analyst Tom Kloza says an oil embargo for Iran will have an effect on oil trading and therefore prices, but it is not the only factor in the equation.

“There is a premium attached to the saber-rattling, and to the fact that a lot of the light sweet crude oil comes from chaotic parts of the globe,” Kloza said Tuesday, Jan. 17. “It’s not something that’s inspiring a lot of speculative buying, but it’s probably discouraging a lot of selling for the moment.”

Kloza says oil traders, particularly the sellers, seem to be waiting for two important January dates to pass. The European Union has a meeting scheduled for Monday, Jan. 23, to discuss possible sanctions against Iran, and Iran has scheduled a military demonstration in the Strait of Hormuz on Jan. 27. The demonstration could have a short-term effect on oil prices similar to last year’s “day of rage.”

“I do think we see higher prices in the spring, but I really do believe it will be episodic,” Kloza said. “We’re going to have these episodes, which for the moment provide price support – a day of rage, a day of war maneuvers – but anyone reasonable has to believe that … where we go in the next few months will not last.”

Global demand for diesel continues to be a major factor in energy prices. Despite the U.S., Europe and Japan showing a decreased demand in recent months, a number of major investment banks believe the growing demand in South America, India and China could boost prices, Kloza said.

“I think the investment banks tend to predict what they want to have happen,” he said. “I think that this year is going to be similar to last year in that it’s going to be front-end loaded.”

Kloza penned a blog this week about a decrease in gasoline consumption in the U.S. He said it could be part of a lifestyle change compelled by unemployment, cost of living, and the fact that people are trying to use less energy but are paying more.

He said January is often a month of cutbacks as the holiday bills come due. Many times, people will consolidate trips or simply cut down on driving in order to pay off other bills. Truckers, for example, do not survive long in the business without operating efficiently and learning to balance their bills.

“People are incredibly emotional,” Kloza said. “It’s like overpaying for tolls. If you overpay for tolls every time, it’s not that it’s going to knock you from upper class to middle class, but you just don’t do it. I think we’re seeing some sort of behavioral change out there that looks as though it’s inspired by high prices but also the sense from the public that ‘I’m using less, but I’m paying more, and I don’t like it.’”

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