Petroleum Prices In

Photo credit: Anadarko Petroleum

About the only thing we can expect when it comes to the price of petroleum-based products is volatility. Changes in supply or demand can have a bigger than expected impact on prices, as what we don't see now is usually what drives prices. That said, we can make a reasonable assumption on prices based on what we do expect to see over the coming year. So, let's take a closer look at the average prices of petroleum products that the U.S. Energy Information Agency (EIA) expects we'll see in 2014.

Oil prices in 2014
Earlier this month I took a closer look at what we can expect from U.S.-based WTI oil prices in 2014. The general consensus is that we can expect U.S. oil prices to average about $95 per barrel in the year ahead. That said, several analysts see more downside to oil prices than upside as the coming boom in oil production out of the Permian Basin could push prices in America to as low as $70 per barrel in 2014.

If that happens, it would really impact U.S.-focused oil producers like Whiting Petroleum Corp. (NYSE:WLL). That's because all of Whiting Petroleum's production is in the U.S. Not only that, but most of its production is derived from high-cost shale basins like the Bakken Shale and the emerging Niobrara. The fact that the company is focusing a good portion of its 2014 growth on the still unproven Niobrara is a big risk if oil prices plunge in 2014.

On the other hand, companies with a more global focus, like Anadarko Petroleum Corporation (NYSE:APC) or Occidental Petroleum Corporation (NYSE:OXY) are in a much better position to withstand lower U.S. oil prices. That's because globally benchmarked oil prices are expected to average more than $104 in 2014. Those prices are further strengthened by OPEC's policies to keep global petroleum prices over $100 per barrel. That's good news for Anadarko Petroleum because it has a world-class exploration program with a number of high-margin oil mega projects. Not only that, but the company is active in places like Ghana, Algeria and Mozambique, with a number of projects elsewhere around the world.

It's a similar story for Occidental Petroleum. While one of its big catalysts in 2014 could see it sell a stake in its international operations, Occidental Petroleum isn't yet giving up on its overseas oil production. Further, as a top oil producer in places like California, where oil typically fetches world benchmark prices, Occidental Petroleum is better insulated if oil prices in America tumble in 2014.

Gasoline prices in 2014
Tumbling oil prices could make for cheaper than forecast gasoline prices in America in 2014. The combination of booming American oil production, increasingly fuel-efficient cars and disappearing American drivers all suggest lower gas prices in 2014 that will average $3.43 per gallon. That's down from $3.50 per gallon in 2013. However, one reason gas prices aren't projected to be even lower than that is because American refineries are shipping gasoline overseas in record amounts. In fact, the U.S. is now a net exporter of refined petroleum products as exports have tripled to more than 3 million barrels per day.

Petroleum product prices in 2014
Increasing exports are also pumping up the prices of refined petroleum products like diesel. However, the good news is that according to the EIA, the price of diesel should average about $3.77 per gallon in 2014. That's well below this year's average of $3.92 and the near $4 per gallon diesel fetched in 2012. Lower oil prices, especially for Brent-based crude oil, which was $108 in 2013 and $111 in 2012 and 2011, are a big reason why diesel prices should fall in 2014.

Americans who use heating oil to heat their homes should also enjoy a bit of a break in 2014. Current projections from the EIA suggest that the price of heating oil should fall to $3.65 per gallon in 2014. That's below the $3.78 it has averaged the past two years. While less than 15% of American homes are heated by petroleum-based products like heating oil, propane, or kerosene, the fuel savings from lower petroleum product prices in 2014 will enable these Americans to spend those funds elsewhere.

Investor takeaway
All the current forecasts suggest that we'll see lower prices for petroleum-based products in 2014. While that's great for consumers, it could hurt U.S.-focused oil producers like Whiting Petroleum. More globally focused producers like Anadarko Petroleum and Occidental Petroleum will be better off as OPEC should keep globally benchmarked oil prices above $100 per barrel in 2014. 

What's worrying OPEC


Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.