A last-minute agreement was reached to hold another two-day meeting in Moscow on June 18th and 19th, but the most positive thing anyone could find to say was that Iran was now talking about its nuclear program which the country has refused to do before.

The price of Brent crude is up this morning by about 0.6% at $107.17, partly in reaction to the failed talks and partly in response to more pressure on Germany from other EU nations to issue eurobonds. Some crude traders have said that the “fear premium” added about $5/barrel to crude prices due to Iranian threats to close the Strait of Hormuz. The impact of further sanctions against the Islamic Republic, set to take effect July 1st, would further isolate the country and its oil, and add even more to crude prices.

Paul Ausick

Chesapeake plans to sell some $11.5 billion in assets by the end of the year as it tries to shore up its finances. The company has also said it would sell oil-rich assets in the Permian Basin of Texas and spin-off a royalty trust to develop its Mississippian Limestone deposits.

Shares of Chesapeake are up about 1% at $15.25 in a 52-week range of $13.32-$35.75.

The EIA reported that US working stocks of natural gas totaled 2.74 trillion cubic feet, about 753 billion cubic feet higher than the five-year average of 2 trillion cubic feet. Working gas in storage totaled 1.99 trillion cubic feet for the same period a year ago.

US natural gas stocks are about 38% higher than they were a year ago and about 38% higher than the 5-year average. Both figures are lower than they were a week ago.

Paul Ausick

The deal was struck with the US Environmental Protection Agency and the state of Indiana is expected to cut 90% of the refinery’s flaring-related emissions. A similar deal was struck between the EPA and Marathon Petroleum Corp. (NYSE: MPC) for six of the company’s refineries.

The capability to process the nastier oil sands crude should lower the cost of crude to BP and improving the company’s margins. Oil sands crude has been selling at a discount of as much as $20/barrel to WTI crude and even more to Brent crude.

The Whiting refinery is expected to start refining oil sands crude next year.

Paul Ausick

The International Energy Agency (IEA) reports the US carbon emissions have fallen by a total of 450 million metric tons in the past five, the largest decrease of any country in the world. The news is not all good though. In 2011, global carbon emissions totaled 31.6 billion metric tons, about 1 billion more than were emitted in 2010. The annual increase is considerably higher than the average 600 million metric tons emitted between 2006 and 2010.

In an interview with the Financial Times, the IEA attributes the drop in US emissions to “a combination of policy and technology – policy driving greater efficiency and technology making shale gas production viable.”

Maybe, but a slow economy in the US and throughout much of the globe also contributed to the decrease. The US industrial capacity utilization rate in April 2012 was just 76.1%, compared with a 30-year average of 80.3%. In 2009, at the depths of the recession, the utilization rate was just 66.8%.

And while natural gas production has boomed in the US, global crude production has not. The following chart from Professor James Hamilton’s Econbrowser blog indicates an expected growth path for oil production (red line) versus actual production (blue line) as a function of global GDP. By last year, production should have been near 100 million barrels/day, but barely managed 86.5 million barrels.

If the dip in the red line on the chart had not occurred, production would have had to reach about 105 million barrels/day to meet demand. Assuming that level of production could have been achieved it would not have mattered how much natural gas the US burned to generate electricity. Carbon emissions would very likely not have fallen if the world economy had not tanked.

Abundant, cheap natural gas in the US was more than offset by added coal burning (and carbon emissions) in China and India. To their credit, the Chinese are working on using alternative fuels like solar and wind to keep their carbon emissions in some kind of check. But if China resumes its 10%+ GDP growth path, all the natural gas in the US won’t keep carbon emissions under control.

Paul Ausick

Gas prices have also begun an accelerated drop. Yesterday, according to AAA, the price for a gallon of regular on a national average was $3.676. That is down from $3.849 a month ago. A gallon of premium, on average, has now dropped below $4. There may be pressure on the US economy because of trouble in Europe. A plunge in fuel prices will not offset that entirely, but it will help.

Douglas A. McIntyre

Oh, and someone some day will probably buy AMR or parts of it out of bankruptcy for a song. Perhaps it is simply just another 100-point-plus drop in the DJIA or another double-digit drop in the S&P 500 Index.  The major airline carriers are trading today:

United Continental Holdings, Inc. (NYSE: UAL) is down 1% at $21.61 against a 52-week range of $15.51 to $26.50; UAL was above $24.00 just one week ago.

Delta Air Lines Inc. (NYSE: DAL) is down 0.8% at $10.45 with a 52-week range of $6.41 to $11.58; Delta is down almost 10% in less than two weeks.

US Airways Group, Inc. (NYSE: LCC) is down only 0.4% at $10.58 against a 52-week range of $3.96 to $11.73; US Air is down about 10% in less than two weeks.

Southwest Airlines Co. (NYSE: LUV) is performing the worst of the lot because most investors believe that are actively hedging and that means they won’t benefit as much from lower oil prices.  Southwest’s share price is down 1.2% at $8.18 against a 52-week range of $7.15 to $12.04.

JetBlue Airways Corporation (NASDAQ: JBLU) is an exception to the rule today.  Its shares are up 3% at $4.40 against a 52-week range of $3.40 to $6.32 in part on follow-on buying after a director of the company bought more than $200,000 worth of stock.

The question that has to be asked is how the end of summer demand is going to be and how the end of 2013 will hold up.  Right now investors are using anything as a source of funds but the movement here might be acting differently than it should be.

JON C. OGG

The American Petroleum Institute had noted an inventory increase of a 1.5 million barrels last week. Crude prices, which have fallen sharply since the first of the month, were already lower before the EIA report and have continued to drop after the news came out. Much of that drop is due to a stronger dollar, in turn the result of the financial crisis in Europe and the threat that Greece will leave the monetary union.

Total gasoline inventories fell by 3.3 million barrels last week and are now in the lower limit of the five-year average range. Over the last four weeks, gasoline supplied has declined by -1.9% compared to the same period last year. Total motor gasoline supplied averaged 8.8 million barrels/day for the four weeks.

For the past week, crude imports averaged 8.6 million barrels/day, down by about 298,000 barrels/day from the previous week. Refineries were running at 88.1% of capacity, with daily input of nearly 15 million barrels/day, down by 57,000 barrels/day from the previous week.

According to gasbuddy.com, US gasoline prices average $3.688/gallon today, compared with a pump price of $3.729 a week ago. AAA’s Fuel Gauge Report shows today’s price at $3.6478, down from $3.728 a week ago. Pump prices continue to fall and the weekly drops are getting slightly larger. The approaching Memorial Day holiday often sees an uptick in pump prices, so this may be something to watch for this week.

WTI crude is down -1.97% today at $90.04 after falling below $90/barrel for the first time since October.

Paul Ausick

At a time when Treasury yields have been nonexistent, MLP investors have been able to get high payouts that are viewed as quasi-dividends, due to some payouts representing income and some representing return of capital. The question to ask now is whether the risk-reward is there for new investors at the current prices. The unit prices of many key MLPs have been hit hard along with stocks in the past few weeks, and we wanted to take a risk-reward look for summer 2012. This sector could get a recovery, or it could face additional pressure like we saw in 2011.

If investors have been involved in the MLP sector since before, during or right after the great panic selling of 2008 and 2009, they are up huge if they held on. In many cases they have doubled their money or more. And as far as they are concerned they have been getting 5% to 8% in payouts each year (again, some income and some return of capital). The problem is that the prices here have become choppy and the MLP structures often have had secondary offerings on top of secondary offerings. Those secondary offerings have provided growth and acquisition capital, but some investors have started to worry that these secondary offerings may be the biggest contribution to the never-ending payout increases that have been seen in this sector.

MLPs in the energy space often attract the same sort of investors who would buy utility shares and preferred shares of banks, but they also overlap with REIT investors who look for above-market yields. This sector has enjoyed large price gains in the unit (share) prices, and investors are looking for any safe investments that have high payouts, compared to the world of no-returns in CDs and Treasuries. A wave of secondary offerings from many MLPs came before and during the recent market sell-off.

24/7 Wall St. has evaluated some of the top MLP investments to see how much implied upside remains in this sector. We have taken price performance as far as the sell-off from recent highs, as well as issues like the payout ratios (implied yield-equivalent) and the consensus price targets from Thomson Reuters. We have evaluated the following MLPs: Enterprise Products Partners LP (NYSE: EPD), Kinder Morgan Energy Partners LP (NYSE: KMP), Plains All American Pipeline LP (NYSE: PAA), ONEOK Partners LP (NYSE: OKS), Energy Transfer Partners LP (NYSE: ETP) and Enbridge Energy Partners LP (NYSE: EEP). These MLPs mentioned and covered here are some of the ones we track and keep on our watch list in the sector. These have market caps above $8 billion, they have a history of increased payouts each quarter, for the most part, and generally speaking these MLPs are all believed to have good management teams.

Investors have made a bundle here in this sector. MLPs are not really all that correlated to the price of oil because these are the partnerships (general and limited) for pipelines, terminals, and other facilities involved in the oil and gas sector in America. MLPs must derive 90% of their income from real estate, natural resources and commodities. The issuing of K-1 statements can make the structure more complicated, but the payouts often make that worth it for many investors seeking higher streams of cash flow.

We also have evaluated some of the key ETFs and closed-end funds in this sector. Be advise that just the three vehicles we have tracked in funds and ETFs have a combined market value of more than $11 billion.

The United States Oil (AMEX: USO) ETN is currently down 1.7% at $34.53 and that nearly matches the low seen last Friday.  It has a 52-week range of $29.10 to $42.30.

AAA has a daily fuel report showing that the national average is $3.68 for a gallon of regular unleaded and $3.845 for a mid-grade gallon of unleaded.   GasBuddy lists the average price today for regular unleaded as $3.888 per gallon.

Gasbuddy even shows the lowest state average of $3.305 per gallon being in South Carolina, with California being the highest of the states (not counting Alaska and Hawaii) at $4.308 per gallon.

The long and short is that this may be tied at least some to currency appreciation of the U.S. Dollar, but the growing fears of a the cloud of recession is causing perhaps the greatest fear out there for oil and gasoline prices.

JON C. OGG