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Bracing for New Records for Oil and Gas

It is the hot topic from the gas pump to Washington to the trading pits at the New York Mercantile Exchange: Will rising tensions with Iran push energy prices back above 2008 record levels this spring? Fund managers are apparently betting that they will.

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“There has never been more money bet on a higher price outcome for gasoline futures than what was recorded this week,” says Tom Kloza, chief oil analyst with Oil Price Info Services, referring to data released Friday afternoon by the Commodity Futures Trading Commission.

The latest commitment of traders report out Friday afternoon, showed what Kloza called a massive “long bias” when it came to gasoline futures investments, and oil futures and options betting prices will rise.

“The buying bias in crude oil is growing at a rate that invokes comparisons with previous energy bubbles,” Kloza said.

Like the 2008 Super Spike but Different

This week’s surge in oil and gasoline futures is drawing similarities to the massive oil spike that resulted in record prices four years ago, when Nymex oil futures prices peaked at $147 a barrel, and the national average for retail gasoline hit an all-time high of $4.11 a gallon.

“I’m reluctant to draw tight parallels,” said Gene McGillian, an analyst and broker with TFS Energy, because four years ago it was the strength of the global economy and demand concerns that drove prices. “Economically now, I don’t think the market is justified to say we get to $145.”

This time, the driving concern is the potential for a major disruption in oil exports from Iran, the world’s fourth largest oil producer.

As Europe and the U.S. pressure Tehran with sanctions over its nuclear ambitions, some Iranian leaders have threatened to retaliate by choking off exports through the Strait of Hormuz, the Persian Gulf’s major shipping channel.

“They’re trying to dance on the head of a pin,” says McGillian of the sabre rattling from Iran. “They like higher oil prices, but the fact is if they can’t sell their oil. They can’t make money.”

New Record Prices at the Pump?

Some analysts have speculated the national average at the pump could reach $5.00 a gallon by July, the peak of summer driving season.

But others argue the furor over high prices could itself have a mitigating impact on prices at the pump.

“The cure for high prices is high prices,” says Citi futures analyst Tim Evans. “We’re at price levels that choke demand.”

Evans believes Americans have changed their driving habits to use less gas and traded down to more fuel efficient cars, in the face of a sluggish economy and high energy prices over the last four years.

That behavior has contributed a big drop in gasoline demand in the U.S. from nearly 9.5 million barrels a day in 2008, down to just over 8 million barrels a day this past week according to U.S. Department of Energy data.

“We should bear in mind what happened in 2008,” when it comes to oil producers and investors Evans cautioned. “You’re encouraging oil producers to pump away. I don’t expect to see OPEC discipline levels.”

He notes investors will also to pile on as prices continue to rise, as this week’s commitment of traders report bears out.

“If Iranian production is not cut off,” he explains, “it’s a long way down for prices.” But Gene McGillian of TFS doesn’t see a significant pullback, as long as there’s a possibility of a confrontation with Iran.

“You can put almost any price on oil, if the Strait of Hormuz gets blocked.”

Disclaimer

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.