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

Gasoline stocks drained as crude rose, with a drop of -2.797 million barrels to 204.3 million barrels.  Dow Jones was expecting a drop of only 300,000 and we were only expecting a drop of 500,000 or a tad more.

Distillate stocks fell by 969,000 barrels down to 119.8 million barrels.  Dow Jones was calling for a drop of only 200,000 barrels and we do not track estimates on this reading.

The big reading comes on the refining side as refineries ran at 88.3% capacity in the last week.  This is up from 86.4% the prior week and well above the 86.7% expected from Dow Jones.  We were hoping for 87% but any gains would have been welcome here if you are in the camp of ample supplies of gasoline and other finished products ahead of the key Memorial Day weekend surge in gasoline demand.

Market Vectors Oil Services ETF (AMEX: OIH) has risen into this news with a gain of 1.9% to $36.94 and this is off of nearly 52-week lows as the 52-week range is $35.80 to $45.14.  That refining capacity should be a boost for Valero Energy Corporation (NYSE: VLO) with again of 3.4% at $22.25 and the newly-listed Phillips 66 (NYSE: PSX) with a gain of 1.4% at $32.12.

Even the United States Oil (AMEX: USO) is up 0.6% at $35.50.

JON C. OGG

The United States Oil (AMEX: USO) is now down 4.1% at $37.23 and the Market Vectors Oil Services ETF (AMEX: OIH) is down 3.7% at $38.57.  Even the JPMorgan Alerian MLP Index ETN (AMEX: AMJ), which is supposed to not be so tied to oil and gas prices, is down 0.75% at $39.43 against a 52-week high of $41.68.

Maybe dividend hikes are helping to mitigate some of the losses in the major integrated oil outfits.  Exxon Mobil Corporation (NYSE: XOM) is down only 1.2% at $84.60 and Chevron Corporation (NYSE: CVX) is down about 2.1% at $103.75.

The drop is rather large in Schlumberger Limited (NYSE: SLB) with a loss of 3.7% at $69.95 for a loss of about $3 billion in market value.  Baker Hughes Incorporated (NYSE: BHI) has suffered substantially from its highs by a drop of half from its 52-week high and shares are now down 4.4% at $40.97.

Elsewhere shares of Transocean Ltd. (NYSE: RIG) is down 4.4% at $48.08 (down from a high of over $70), while National Oilwell Varco, Inc. (NYSE: NOV) is down ‘only’ 2.2% at $71.12.

Valero Energy Corporation (NYSE: VLO) is even lower by 3.1% at $22.80 even though certain drops in the price of oil will help its operating margins.  The caveat is that refiners need lower prices and actually they need stable prices so that they can have steadier pricing.

While its move to oil is marred by corporate problems tied to its CEO and governance issues, Chesapeake Energy Corporation (NYSE: CHK) is the only stock up on the major oil and gas stocks we follow.

This drop to $98 in crude is the lowest level since roughly February 10, 2012.  This is setting up to be the worst week for crude since the end of September.

JON C. OGG

Exxon Mobil Corporation (NYSE: XOM), Valero Energy Corporation (NYSE: VLO), and Chesapeake Energy Corporation (NYSE: CHK) probably have been expecting more and more calls against these subsidies since the day President Obama was elected.  All three are down with the broad energy sector today.  Exxon is down only 0.5%, Valero is down almost 3%, and Chesapeake is down 2.3%.  This was not the first call to end tax breaks, nor will it be the last.

Before thinking this is too one-sided, the take here is that this just needs to be explained better.  Depletion allowances are something that has been on the books for generations because it is not exactly as though oil fields are factories that will last hundreds of years.  There is a finite life that is not endless.

It is easy to attack subsidies.  There are many subsidies and incentives that actually should certainly be removed as there should be ample profits as it already stands for the big oil companies.  Still, there are some which have to be considered and clarified better than simply taking an “us versus them” speech that just attacks billions and billions in subsidies because it sounds good.  Quantifying what these subsidies are is something that no politician does very well, and that is true on both sides of the aisle by and large.

Obama is continuing the call for more advanced homegrown biofuels, more clean and renewable energy, more energy-efficient buildings and cars, and is continuing to tout how it is time to double-down on investing in these areas along with wind and solar.  Another note that President Obama did continue with is an “all of the above” strategy for an energy policy that is still a very unclear energy policy at best.

If this speech was aimed at helping alternative energy players, it has not so far been recognized in shares of First Solar, Inc. (NASDAQ: FSLR) as they are still down 0.7% at $24.89.

As oil was lower on the day ahead of this speech and due to testing a technical level on the downside, we see that shares of United States Oil (NYSE: USO) are down over 2% at $39.35.

Interestingly enough, the endless farm subsidies not ever mentioned.  Nor were the real risks in throwing real taxpayer money rather than tax breaks that are already costing the public in failed alternative energy companies.  Is it fair to bring up “Go Evergreen Solar! Go Solyndra!” today?   Those are wasted dollars that won’t be coming back and there is nothing to show for it.  Hopefully some of the other DOE loan guarantees will have real payoffs in the future.

Attacking oil companies is nothing new, and this will not be the end of these calls.  Oil companies do need to be a part of an energy policy in the future, as do alternative energy companies.  An “all of the above” strategy sounds great on paper but the underlying cooperation has just not been that evident in forming a real energy plan.

JON C. OGG

An energy policy of 2012, or 2016 for that matter, cannot be one just bashing more progress.  Maybe there really are other forces at work in economics from Washington than basic supply and demand.  Washington does seem to have a lock on refusing to deal with the reality of inflows versus outflows or simple supply and demand.

Here is something to consider for why oil bashing today is just not a good idea.  A report from ABIresearch in London this week projects that global hybrid vehicle sales in 2020 will be 8.3 million cars.  That is projected to represent about 11% of total global auto sales that year.  So, even considering the multiple other technologies for power a car by the year 2020… Let’s say that compressed natural gas is running every single new truck engine in America and Canada by the year 2020… Does this sound like the demand for gasoline is going away any time soon?

If you use a supply and demand formula for price discovery in economics, what happens when you produce (supply) more oil?  Apparently there is an issue of math and logic that we just don’t get even taking the secondary and tertiary economic forces into consideration.

Why does it feel like as the election gets closer that tapping the strategic petroleum reserve is going to be used as a political tool.  It has happened before.

Here is the funny thing… We should probably all be calling for more and more alternative energy to be used.  Really, wind mills won’t kill the environment.  Solar panels won’t cause a meltdown.  For better or worse, nuclear energy has to have its place in the equation as well.  But… Alternative energy has to make some sort of financial sense at prevailing market prices.  And ultimately any alternative energy on a wider scale has to make financial sense on a unsibsidized basis.

As oil has risen yet again today and is making even $100 per barrel sound good, the United States Oil Fund (NYSE: USO) is up 1.8% at $41.33.  The United States Gasoline Fund LP (NYSE: UGA) is up 0.9% at $56.67 at the same time.

JON C. OGG

It is likely going to take more than $3.50 per gallon at the pump to derail the recovery, but what about $4.00 per gallon?  If you look at the one-year chart from GasBuddy you can see that gasoline prices rose and rose from mid-February right up into May.  Gasoline peaked out at almost $4.00 per gallon and then things start heading down in the broader economy.  Remember “Sell in May and go away!” as far as the stock market?

While many of the reasons may be coincidental, the tie to oil is just very difficult to ignore.  High oil prices have a twofold impact.

The first impact comes from consumers spending more on gasoline and then they have less to spend on other consumer goods that drive the economy.  Higher gasoline price act as a tax, and a regressive tax that hurts middle-income earners and low-income earners the hardest.  The figure widely used by the media is that each penny of higher gasoline price takes out over $1 billion from economic spending each year.  So the difference of $4.00 gasoline versus $3.00 gasoline is over $100 billion in consumer spending.

The second (and arguable even worse than the first) impact is the psychological damage of high gas prices.  When consumers are paying more and more for gasoline, the start to slow down on their spending purchases elsewhere.  It can impact what consumers buy at the grocery store.  A person’s daily spending habits can change.  As far as big-ticket items, those start to get put off even more.

T. Boone Pickens was calling for oil prices just last week.  Iran is effectively off of the Western market now.  The United States Gasoline Fund LP (NYSE: UGA) is up almost 0.7% at $55.43 and the United States Oil Fund (NYSE: USO) is up almost 1% at $40.13.

Exxon Mobil Corporation (NYSE: XOM) is believed to be a winner with high oil prices, even if refining margins and incredibly low natural gas prices are pressuring its  margins and earnings.  Still, Exxon Mobil shares are up 0.8% at $86.32 and that has the stock within $2.00 of a 52-week high.  This stock peaked around $95.00 per share during the 2007 to 2008 oil bubble.

Margin requirements for traders to speculate in metals and energy futures were recently lowered.  Maybe it is time to raise those back up.  Last week the feeling was that $4.00 was just a threat.  Now it is becoming a reality.

JON C. OGG

Effectively, the CME is lowering the cost to trade crude oil, gold, silver, copper, and a few other commodities. So far this has had no impact on prices of the SPDR Gold Trust (NYSE: GLD), United States Oil Fund (NYSE: USO), iShares Silver Trust (NYSE: SLV), nor in the iPath DJ-UBS Copper TR Sub-Index ETN (NYSE: JJC).

In the past, margin costs were raised on traders as an effort to curb runaway trading to the upside by making it more expensive for traders and speculators to trade energy and metals.  In short, driving up the cost of poker creates fewer gamblers. So what happens when they make it cheaper to trade?

The full details are here.

JON C. OGG

Gasoline inventories fell by 3.324 million barrels to 206.271 million barrels, worse than the drop of 1.7 million expected by Dow JOnes.  Distillates fell by 4.266 million barrels to 149.739 million barrels, also worse than the 1.7 million draw expected by Dow Jones.

The other issue to consider is a lower refining capacity.  Refineries in the last week were shown to be at 83.1%.  While some slowing is routine, this is down from 84.2% a week earlier and worse than the 83.8% expected by Dow Jones.

Valero Energy Corporation (NYSE: VLO), the king of independent refineries, is now up 1.3% at $23.70 and is challenging 5-day highs.  Oil Services HOLDRs (NYSE: OIH) is up 0.7% at $121.95, also challenging 5-day highs.

The United States Oil (NYSE: USO) Fund is up 0.9% at $34.47, above yesterday’s high of $34.45 and back at the highest levels since September 16.  WTI is up $0.80 at $89.14 on last look.

JON C. OGG

Oil got another boost over the holiday weekend from a forecast in Barron’s predicting $150/barrel by the end of the second calendar quarter of 2012.  Growth of demand from developing markets, combined with a tight supply are the main drivers of the steep predicted rise.  Despite the notion that the “bulls may have been too bullish” we have looked through our list of mutual funds and exchange-traded funds which we think will benefit the most from the upside in oil.  Other leveraged funds exist, but we stuck with the volume and safety parameters in mind.

A price increase of this magnitude suggests that mutual funds and ETFs that hold substantial assets in exploration & production or oil field services stocks could be positioned for more growth. For comparison purposes, we’ve selected the Oil Services HOLDRS ETF (AMEX: OIH) and the ProShares Ultra Oil & Gas ETF (NYSE: DIG). We’ve looked at several funds and ETFs: PowerShares S&P SmallCap Energy ETF (NASDAQ: PSCE), SPDR S&P Oil & Gas Exploration and Production ETF (NYSE: XOP), PowerShares Dynamic Oil & Gas Services ETF (NYSE: PXJ), Fidelity Select Natural Resources (FNARX), and Putnam Global Natural Resources (EBERX).

The Oil Services HOLDRS ETF (NYSE: OIH) holds about $2.9 billion in assets. Year-to-date, the fund has returned 9.13% and its trailing three-month performance is -6.96%. OIH holds just 14 stocks, all of which are primarily oil field services companies.

The ProShares Ultra Oil & Gas ETF (NYSE: DIG) holds about $342 million in assets, and its year-to-date return is 22.70%, while its trailing three-month performance is -9.87%. DIG is a leveraged ETF that seeks to return 200% of the performance of the Dow Jones U.S. Oil & Gas Index.

The PowerShares S&P SmallCap Energy ETF (NASDAQ: PSCE) holds $107 million in assets. Year-to-date returns total 17.50%, while the  trailing three-month return is -6.25%. The fund holds just 20 stocks, with a mix of E&P and services companies. Its year-to-date return is nearest to that of DIG, and its three-month performance is about 50% better.

The SPDR S&P Oil & Gas Exploration and Production ETF (NYSE: XOP) holds about $603 million in total assets, and posts a year-to-date return of 13.72%. It’s trailing three-month return is -7.8%. Year-to-date this fund is performing about 50% better than OIH.

The PowerShares Dynamic Oil & Gas Services ETF (NYSE: PXJ) holds $245 million in total assets and has a year-to-date return of 13.51%. The trailing three- month return is -6.31%. The fund’s largest holding is Halliburton. Compared with OIH, the year-to-date return is about 48% higher.

The Fidelity Select Natural Resources (FNARX) fund holds total assets of $1.8 billion. The fund’s year-to-date return is 8.72% and its trailing three-month return is -6.04%. Chevron Corp. is the fund’s largest holding, while Halliburton is its largest services holding. Compared with DIG’s year-to-date return, the fund is performing less than half as well.

The Putnam Global Natural Resources (EBERX) fund holds total assets of $471 million. The fund’s year-to-date-return is 8.14%, and its trailing three-month return is -1.93%. It’s single largest holding is Exxon Mobil Corp., while Schlumberger Ltd. is its largest services holding. This fund also trails the returns of DIG by more than half, although its three-month performance is substantially better.

You will probably notice that the United States Oil (NYSE: USO) exchange-traded product is not on this screen despite it being the closest oil-tracking ETF for the price of oil.  The rolling nature of front-month futures expiring and the lack of overnight tracking all eliminate this from even being a top tracking mechanism in general.

Oil field services stocks, as a group, have performed better than E&P stocks primarily because natural gas drilling has increased onshore in the US, and more offshore drilling is getting lined up offshore of Africa. These stocks will get another boost when (if) work begins in earnest in Iraq.

E&P stocks benefit from higher crude prices, but only up to a point. When gasoline pump prices get to be in the $4-$5 range in the US, consumption decreases. When crude prices get threaten to hit $125/barrel, consumption in emerging nations can stall.

That doesn’t change the fact that currently supply dominates pricing. And that is unlikely to change — at least for a very long time.

Paul Ausick

Silver had been down as much as almost nine percent this morning but the ETF shares of iShares Silver Trust (NYSE: SLV) are down about 4.6% at $32.80 on almost 2.5 million pre-market shares.  Keep in mind that the silver ETF was just above $48 only two weeks ago today. Gold was down more than 1% earlier and the SPDR Gold Shares (NYSE: GLD) is down 0.85% at $145.29 this morning.

WTI Crude was down $2.33 at $95.88 earlier and the United States Oil (NYSE: USO) is down 2.9% at $38.20 this morning.

It was just two weeks ago that the market pundits were calling gold, silver, and hard commodities to be the new currency of the world ahead.  Milton Friedman once said paper money is worth whatever people think its is worth when it came time to get off the gold standard.  Suddenly, paper money is back in vogue.  Maybe the U.S. Dollar is not worth what it was, but it hasn’t ever seen a 30% drop in two weeks like we have seen in silver. 

JON C. OGG