M.F. Global senior vice president John Kilduff is an expert on the energy markets. In this post, Kilduff, a CNBC contributor, discusses why oil keeps rising and who stands to lose. The following comments are his. The video clip is the interview he did Friday with CNBC's Patti Domm.
The great debate over the current level of energy prices continues apace. In some quarters, there is absolute disbelief about gasoline prices that are approaching $4.00 per gallon, and crude oil prices hovering around the $125 per barrel level.
Others are applauding the role of hedge fund investors and others speculators in pushing up prices and are pointing to diesel fuel demand, declining oil output in several key countries, refinery outages, and geopolitical risks that may affect additional oil output. Like most things, the truth would appear to lie somewhere in the middle.
Regardless of the cause of current price levels, there are, incredibly, more losers in this situation than seems imaginable. Consumers, transportation companies, and the airlines are the easy ones to identify in this camp. However, there are others. Refinery profits have been hit hard by the inability to fully pass along the soaring cost of crude oil prices.
As a result, refineries in the United States are running at below-normal levels for this time of year. The profits on the sale of gasoline and soda at the corner filling station are also impaired: they, too, cannot pass along price increases sufficiently and drivers have little left over to buy a coke. But there is no smile to go with that coke these days anyway.
Could even the country of Iran be a loser in the current market? Maybe, but it’s more self-inflicted. They are currently considering cutting their oil output, but not necessarily because they want to drive oil prices even higher. It appears that the market for their sulfur-laden crude is soft, and buyers are demanding a bigger discount than Iran is willing to bear. Iran offshore oil storage facilities, holding some 30 million barrels of crude oil, are reported to be nearly full.