This Week in Petroleum
Posted by Robert Rapier on May 19, 2007 - 11:16am
Topic: Demand/Consumption
Tags: eia, gas inventories, gas prices, oil inventories, twip [list all tags]
Introduction
If you follow the petroleum markets, or you just want to know what is going on in the world of energy, the weekly reports from the Energy Information Administration (EIA) are invaluable. Every Wednesday the EIA releases reports detailing information on petroleum and product inventory levels, imports, prices, refinery utilization, etc. For those who follow this information, the recent run-up in gasoline prices is not a surprise, as you would have seen it coming. The price increase is not driven – as certain politicians and consumer groups have indicated – by a renewed willingness on the part of oil companies to gouge consumers. On that topic, I quote Paul Sankey, of Deutsche Bank, in his Senate testimony on May 15th:
Anybody who blames record high US gasoline prices on "gouging" at the pump simply reveals their total ignorance of global oil supply and demand fundamentals. The real reason for high pump prices is the lack of global gasoline supply relative to demand. Just in the US, overall US refining capacity, at 17 million barrels per day (mb/d), is far below demand at 22 mb/d. In turn, pump prices are effectively set by import prices. With strong demand outside the US on the back of global economic growth and a weak dollar, the era of abundant US oil supply augmented by willing international sellers is dead.
But this essay is not about allegations of price gouging. I know people have strong opinions on both sides of the matter, and I will leave that debate for another day. This essay is intended to introduce you to an accessible, easy to understand tool that will help you more clearly understand the fundamentals that affect price and supply at the pump. In fact, it was largely the information in these reports that led me to start sounding warnings at the first of March that we had potential gasoline supply problems looming this summer.
The roots of the current situation go back to last winter. After record high prices, demand softened, autumn rolled around, and prices plunged. Consumers, having become accustomed to gasoline near $3/gal, were now looking at prices closer to $2/gal. This spurred record demand. When refineries started coming down for spring turnarounds, the gasoline drawdown was very steep due to such high demand (which you could see in the weekly reports), and prices were too slow to respond. So, now prices are trying to make up for lost ground.
The links you want to bookmark, if you want to be more informed about what’s happening in the world of energy, are:
This is the first report to come out. It is released at 10:30 a.m. EST each Wednesday. This is a text file that provides all of the important details, although without the graphics. But it is a link that I typically click into within 5 minutes of the release of the report each week.
The second link that I read every Wednesday is:
This is a comprehensive and graphical look at the trends and developments. The report is released at 1 p.m. EST, and is primarily written by EIA analyst Doug MacIntyre, who has been making himself available for answering questions following my blog postings on the weekly report.
TWIP 5-16-07
The focus of this week’s edition of This Week in Petroleum was the gasoline situation. Some excerpts:
Why are gasoline prices so high?
Gasoline inventories have recently been drawn down at a dramatic rate to bridge the gap between supply and demand (see Figure 4, in the Weekly Petroleum Status Report (WPSR)). Over 12 consecutive weeks during February, March, and April, total gasoline inventories declined by a cumulative total of more than 34 million barrels (15 percent). This is the sharpest decline in gasoline inventories over a consecutive 12-week period in EIA’s recorded historical data.
Is there an end in sight or will gasoline prices continue to rise all summer?
Although gasoline inventories are expected to remain lower than normal throughout the summer, high prices have encouraged more supply and inventories have increased slightly the last two weeks. Domestic gasoline production has increased by more than 500,000 barrels per day in the last three weeks and total gasoline imports (including blending components) during the week ending May 11, rose above 1.5 million barrels per day, making that week the fifth highest weekly import volume ever and the highest since last May. Should imports continue at such levels and more domestic refinery capacity come back online, supplies will improve and wholesale prices could come down. However, with gasoline inventories likely to remain low all summer, retail prices are expected to remain close to $3 per gallon during the entire summer season. Prices could rise again towards the end of summer if demand surges, as it often does, in late July and August.
Inventory Highlights
I had predicted that this week would see a build, but it would fall short of what we need to stay out of an unprecedented Memorial Day inventory situation. I was correct on both counts:
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose by 1.0 million barrels compared to the previous week. At 342.2 million barrels, U.S. crude oil inventories are just below the upper end of the average range for this time of year. Total motor gasoline inventories climbed by 1.7 million barrels last week, but remain well below the lower end of the average range. Distillate fuel inventories increased by 1.0 million barrels per day, and are at the upper end of the average range for this time of year.
We now have 2 weeks in which to gain (200.7-195.2), or 5.5 million barrels, else we set a record low for Memorial Day. So we will need to average 2.75 million barrels each of the next two weeks. Impossible? No. Unlikely? Yes. The significance? I have been kicking that around. We could get off with no real problems, other than higher prices. What these low inventory levels do is increase the level of risk in case of an emergency of some sort. If a hurricane shuts down major production, we could see gas outages and a very fast run-up in gasoline prices. Time will tell whether we luck out this summer. Best to keep your tanks topped off this summer, especially if you live in a hurricane prone area.
Pre-Release Information
The above section was written following the release of the report. The following section was written prior to the release, and details the hole we have dug.
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I will update this as soon as this week's report is released. But as I await the report, I wondered just how far we have to go to dig ourselves out of the hole we are currently in on gasoline inventories.
Last week's report showed gasoline stocks at 193.5 million barrels. Just eyeballing the gasoline inventory graph, the 5-year average for gasoline on Memorial Day - the traditional start of summer driving season - ranges from a low of 208 million barrels to a high of 218 million barrels. Counting last week's numbers, which will be reported in today's This Week in Petroleum (TWIP), we have 3 weeks to get back to the lower end of the range. That would require a weekly build of (208 - 193.5)/3, or 4.8 million barrels a week. Impossible?
No, but it looks unlikely. The largest weekly gain that was ever recorded happened the week of May 28th in 1993. The increase in gasoline stocks that week was 11.5 million barrels. That appears to be quite an anomaly, because the next highest May increase was in 1994 at 5.6 million barrels. If we only look at the data since 2000 – which would be more in line with the current supply/demand picture – the largest May gain occurred in 2001 at 4.3 million barrels.
So, in order to avoid going into the summer driving season below the lower end of the range, we would have to see 3 consecutive weekly gains that have not been seen this century - fueled by very strong import levels (or record-breaking demand destruction). So, again I go out on a little limb and say that we will enter summer driving season below the bottom of the average range.
If we have an uneventful summer, prices may not go too much higher. But in my opinion we will go through the summer about one gulf hurricane away from nationwide average gasoline prices rushing past $4/gallon. They could go much higher in the event of a major refinery disruption ala Hurricane Katrina. It is really hard to imagine where gasoline prices could top out given current inventory levels.
Going for a Record?
To put the matter in a bit more perspective, here are the Memorial Day gasoline inventory levels since 1990.
| Date | Vol (million bbl) |
|---|---|
| May 25, 1990 | 218.5 |
| May 31, 1991 | 215.7 |
| May 29, 1992 | 218.0 |
| May 28, 1993 | 229.9 |
| May 27, 1994 | 214.4 |
| May 26, 1995 | 210.0 |
| May 31, 1996 | 206.1 |
| May 30, 1997 | 200.7 |
| May 29, 1998 | 218.2 |
| May 28, 1999 | 223.0 |
| May 26, 2000 | 201.1 |
| May 25, 2001 | 208.0 |
| May 31, 2002 | 215.9 |
| May 30, 2003 | 207.3 |
| May 28, 2004 | 204.3 |
| May 27, 2005 | 216.7 |
| May 26, 2006 | 209.3 |
Table 1. End of May Gasoline Inventories since 1990
The lowest number on the list is 1997 at 200.7 million barrels. Even to reach that number, we would have to gain (200.7-193.5)/3, or 2.4 million barrels for the next 3 weeks (7.2 million barrels total). And while I think we are likely to see a gain in inventories this week as higher prices continue to bite into demand, we aren't likely to gain 7.2 million barrels over the next 3 weeks. So, again I go out on a limb and say we will hit Memorial Day with record low inventory levels.
How TWIP is Written
I recently asked Doug MacIntyre how he goes about writing TWIP. Here was his response:
Actually, I wish I knew sometimes. As a write this comment, it's Tuesday afternoon and I have NO idea what my hook or topic will be (although gasoline does seem to be an obvious choice, not every report can be on gasoline). Sometimes it is mostly written by Tuesday, but most of the time, not a word has been written until Wednesday morning, plus I have to wait until I write those pithy 4 paragraphs of text that gets released with the data at 10:30 am ET! Often, the issues that take the least amount of time seem to be the ones I like the best. Anyway, right now, I'm at a blank for what tomorrow's edition will be.
BTW, while I write the vast majority of them, I have some colleagues that pitch in every now and then, which I truly appreciate!
I told him he could always write about the blogger who had the amazing foresight months ago to start warning of potential record gasoline prices - based on his weekly reading of TWIP and the EIA statistics. :-) On a more serious note, I have suggested that he devote an upcoming version to the subject of imports: where they come from, how long it takes them to reach our shores, etc.
Further Reading
Following are some of the essays that I have published this year addressing gasoline inventories/prices.
Gouging is an Idiotic Explanation
This Week in Petroleum 3-28-07
This Week in Petroleum 4-11-07
This Week in Petroleum 4-18-07
Thanks for this.
This comment:
suggests that for the whole picture, we need world petroleum supply and demand figures. Are these around anywhere?
Peter.
Supply and demand information is available on the EIA site if you poke around. Start here:
http://www.eia.doe.gov/emeu/international/contents.html
Petrol prices in Australia (and in much of Asia) are determined with reference to the Singapore Refinery Price.
The Australian Insitute of Petroleum charts this on a weekly basis, and provides a detailed explanation of the factors influencing the pump prices:
http://www.aip.com.au/pricing/facts/Weekly_Petrol_Prices_Report.htm
Currently prices in Australia are approaching the $1.40 per litre high that was set last year, although crude is still under $70 and the Australian dollar is up 10% since then. This is due to the increased divergence between crude prices and refined "gasoline" prices in the Asian market as the graphs show.
I don't expect anyone in the northern hemisphere to care much about Aussie petrol prices, but since the USA is now importing 5 million barrels per day of refined gasoline, and much of the growth in demand for gasoline is coming out of Asia, I imagine a few people might be interested in tracking this crucial Asian benchmark.
If we are to believe in things we cannot see or touch, how do we tell the true belief from the false belief?
What are the gasoline taxes in Australia ?
See chart at bottom of this page
Excise $A0.38 per litre then GST of 10% on (wholesale +excise)
So at May13 Tax $A.49 /litre on $A1.30/ litre retail (the light blue part of chart)
Although prices at the bowser have been climbing, the level of petrol excise has been falling in real terms since 2001 when it was cut to 38 cents a litre and was no longer indexed to inflation.
http://www.smh.com.au/news/business/petrol-taxes-too-low-say-economists/...
the USA is not importing 5 MMBD of gasoline. More like 1-15 MMBD. Total demand is only 9-10 MMBD and we do have 17 MMBD of refining capacity...
Also be very wary of S'pore price indexes. When I was trading in those markets there was very little fixed price business for the marker journalists to hand their hats on. Almost everything was Platts + or Argus -. Then some shady character would do on small piece of fixed price business just to move the print. All that means is from day to day the number cna be squirrelly so look at say monthly averages.
Xburb posted the following link on Drumbeats: http://fpc.state.gov/documents/organization/33168.pdf
Figure 2 in the above report gives us 185 mb of gasoline as the level at which we start seeing spot shortages. Let's define this as Minimum Operating Level (MOL). We currently have 195 mb, and we have already had reports of isolated spot shortages.
My guesstimate is, based on the 185 number, that the non-West Coast Minimum Operating Level (MOL) is about 160 mb, while current non-West Coast gasoline inventories are about 167 mb. So, based on the foregoing, the non-West Coast has less than one day's supply above MOL.
Thanks for your great posts, Robert! The only thing you didn't mention is that we have a minimum requirement for 185 million barrels in the system just to keep the pipelines running and process equipment primed, so our real inventories are much smaller than 200,000,000 barrels-really a two or three day supply.
I'm sure this keypost will draw your usual group of snipers and conspiracy theorists. I'd like to state in advance that I've always found your posts accurate and painfully honest,that you seek the truth and to make it available.
The only thing you didn't mention is that we have a minimum requirement for 185 million barrels in the system just to keep the pipelines running and process equipment primed, so our real inventories are much smaller than 200,000,000 barrels-really a two or three day supply.
The reason is that this is essentially brand new information to me. Obviously there is a minimum level that has to be in the pipelines, tanks, etc., but I did not know it was so high. A couple of comments that Paul Sankey made in his Senate testimony now sound fairly likely:
One of the things I love best about TOD is how quickly various information is diseminated to everyone here, and how we can all react and change our views. This data really seems to be showing Jeffrey's Export Land hypothesis is kicking in. It shows the true frailty of our system, and, IMO proves peak oil has happened. It may just be for geopolitical reasons, but the declines in Saudi production and Nigerian shut-ins make it unlikely that we will see the 88 mmbopd level that you predict in the next couple of years.
I really hope I'm wrong about this-the world needs the room so that the message can be spread. I sure hope this is just a temporary glitch, but when everybody is already running flat-out and barely keeping up any minor incident is magnified. Its terrifying !
Robert - I looked for that quote, about a 1970's style crisis, in the Senate pdf you linked to earlier in the article, but couldn't find it. Is it from another document (or am I just blind?)
Reason I ask is that I'd like to use it as a reference for telling others of the hairiness of the edge on which we are walking. - thanks
See the 2nd paragraph under executive summary in the PDF link.
Thanks Robert... turns out I am blind!
That statement to me sounds more ominous than what is being reported in the MSM... it just seems to have been totally overlooked by the newswires, blogs, and everything I read.
How did the Senate committee react to that testimony? It certainly poured cold water on the rants of some politicians.
I am watching the webcast right now:
Senate Energy Hearing Webcast
The hearing doesn't start until about the 22 minute mark. For the first 21 minutes there's nothing. I am interested to see how they reacted, but I just started watching it.
Sankey knows his stuff. If you want all the issues clearly laid out, he knows and understands the industry and the history. I am at the 53 minute mark right now, and he has been the most impressive speaker so far. Even if he is a Brit. :-) But they tend to be quite direct in their speech, and he told them that they need to keep in mind that Europe pays double the cost of the U.S. for gasoline.
I am really looking forward to the Q&A.
I just watched Senator Wyden from Oregon, and he left me with a very unfavorable impression. He kept asking why the oil companies weren't reinvesting their profits, and Sankey kept saying that they were. Wyden must have repeated this 3 or 4 times, and then he closed with it. He wasn't interested in Sankey's view, he just wanted to assert that profits aren't being reinvested.
That's my first and only impression of him, but I think he is probably pretty typical. They don't actually want to listen to what you have to say.
wyden's mind is already made up. His famous report which postulated that oilcos were shutting down refineries in some planned way to drive up prices was riddled with mistakes. He strikes me as the sort that decides what the answer should be and then searches for whatever data bolsters the pre conceived notion.
Anyone who looks at the data hard understands that refining capacity has grown by about a third from 1990. The bad news is that demand grew faster and imports are much less available due to spec changes and overall world demand growing. Those European, South American and AG export refineries now have other markets looking for product. Of course refiners didn't invest in excess capacity in the 90's. their margins were already poor due to excess investment worldwide in the 80's. Time to pay the piper until the herd all rushes to add capacity in the next 5 years.
I finished watching the web cast and wrote up my impressions:
http://i-r-squared.blogspot.com/2007/05/comments-on-senate-hearing-on-ga...
Wyatt wasn't the only one who put his meager knowledge on display. Check this out:
Senator Menendez: Over the past few years, it seems that bracing for the onslaught of record high prices at the gas pump has become as common as planning for the summer vacation. And we see prices rise and fall, we understand the concept of a changing supply and demand chain, that's not foreign to us, but when we see no singular event, no visible cause for the increase in prices, consumers scratch their heads and try to figure out what's happening. This is the 3rd year in a row in which consumers are facing gasoline prices above the $3/gallon mark. Yet there's no devastating hurricane this year; there's no single event at a refinery or in an OPEC country that explains why, in the first half of May, consumers are already experiencing sticker shock. Mr. Sankey, when you say there is no price manipulation through the whole supply chain, then why do prices seem to spike during times of greatest motorist activities such as the summer, and Memorial Day weekend? Now, I am sure that demand is part of the answer, but it seems that we find that it is in these time periods that the prices spike. Is that just convenience, that it just conveniently happens that way? Is it just a pure coincidence?
Now remember, this is a guy who says he understands all about supply and demand, and now is asking if it's a coincidence that prices rise at the times of highest demand. If I had been a witness, it would have been hard for me to hide my disbelief at this question from another esteemed member of the Senate who happens to be formulating energy policy.
I think he is trying to insinuate that their is enough refining capacity and its being held back. The wording seems poor since I suspect he did not want to give the chance for a rebuttal of the underlying assumption he is trying to sneak in. If you heard this statement it does a good just of sneaking in this concept. So it probably sounds like pretty decent doublespeak to the average American.
Given that this stupidity is coming from a fairly powerful person in the US anyone that does not expect a witch hunt or big oil hunt in the near future is probably mistaken. And technically we really are not suffering direct peak oil effects yet just some temporary refining issues can you imagine the ton when real shortages become possible. We still have two more years before demand and supply diverge enough to make peak a significant factor.
I spoke too soon. . .
My daughter and son-in law are leaving next week on a road trip from Dallas to Oregon, where my daughter will be doing a six week internship program. I told them that, IMO, it was unlikely that they would see empty gas stations on the way out. However, I wasn't sure about the return trip (they may be flying back if one of them gets a job out there).
In any case, I then went to get the mail, and I stopped to fill up the Toyota. No gasoline at the first station I went to in North Dallas. Empty. Nada. None.
Lots of gas here in Oregon at @3.40 on the coast to @ 3.30 around Portland. We used to have a large differential between the coast and inland of 25-35 cents, which has now mostly evaporated. In fact, on one recent trip to Portland from the coast, gas was cheaper on the coast. I expect to see 4s in the dollar position on price signs by July at the latest.
Four $$$$ a gallon gasoline is here! Just three blocks down the street from where I sit typing this, (in San Francisco) there is a Shell gas-station. I walked by it the other day, and saw that Regular was priced at $4.33/gal. There was a mid-grade gasoline at $4.43/gal and something called V-test priced at $4.53. Diesel was around $3.85, if I recall correctly. But just across the street, there is a Chevron station, and here the prices across the board were about 65-70 cents a gallon cheaper. I’m wondering at this huge price difference, and why the Shell station would expect to get ANY business.
Antoinetta III
Yeah, there was an article linked in an earlier Drumbeat about the owner who raised the price over $4 to make a political statement/protest against Shell. We got to 3.99 9/10 for premium last summer here on the coast.
I filled everything up just in case and Chevron 91 octane at the American owned station was 3.25, 87 octane car gas was 3.05
The only unusual thing was several individual pumps out of service. Looking at other stations they also seemed to have several pumps out of service, but otherwise were selling gas just fine. No lines, lots of activity, almost like they are trying to control the rate at which they sell it.
According to my brother, there are many stations in Northwest Arkansas (Fayetteville area) that are out of gasoline. He suggested I fill up my cars before I drive up there to assist him with a project, because it was unlikely I'd be able to do so up there.
And you know... It's only going to get worse.
So most of the 200 million barrels is actually pipeline water volume, which really shouldn't be counted?
I think we are going to find out exactly how much reserves we have this summer.
Its not water, its gasoline. But its impossible to get it all out without constantly refilling and pumping from tanks. Lots of the crude inventory is the same-it needs to be in the system so that the equipment works properly, these are constant chemical processes.At least that's my understanding, but I'm in oil and gas exploration, not refining or marketing.so I'm not an expert.
I should have properly said "pipeline inventory." I'm more used to gas pipelines, gas as in nitrogen or methane.
to put it this way - you know when there are air-pockets in your waterpipe systems at home, after the plumber is gone ....
It is hissing at you ! I assume this will apply for oil as well .... all this hissing
it's kinda hard to believe that refiners didn't see this coming to some extent. if it is their job to keep up with demand... all you have to do is look to auto sales by category, and understand that demand is not slowing down. gas guzzling forever, the american way.
so , is the question really that they decided it's a lot easier to import gasoline then build another refinery extension.( or do they , in their heart of hearts, believe in peak oil limitations?)
Steve:IMO, if you are wondering whether oil refinery corporations top execs are aware of global oil depletion, forget what they say- watch where they spend (or don't spend) the money. It is not just refiners- companies like XOM are not spending the money on exploration they would be if they actually believed their PR (probably because the money they have spent in this area in the last 5 years has not been a wise use for the capital).
steverino, with Clean Air regulations its a lot easier to add on to an existing refinery than to build new ones. And, some refiners probably do believe in Peak Oil-Robert works as a chemical engineer and has been predicting this price run-up for months. BP and Chevron have both been implying Peak Oil in their advertisements. The real question is why the MSM won't report these issues-if you listen to NBC, Fox or CNN the message seems to be the supply is infinite and anyone who says different is crazy, foolish and un-American.
Why doesn't the MSM report it? They are utterly incapable of subtly, especially the news outlets you mentioned. They can't just give a sober, well-thought-out analysis for which the logical viewer reaction would be to call their congressmen and insist on higher fuel economies or get their car tuned up, or even start shopping for one that gets better than 15 miles to the gallon.
Instead the TV would have a big exploding graphic saying "Driving Doomsday"(T), and some interviewee would come on and say something rational and the anchor would translate it as: "So, you're saying people could be stranded all over the country this summer, unable to buy gasoline??? Right??" and then the anchor would make some stupid punny joke which would be the last thing the viewers would hear as they ran out the door to go fill up the one point two cars per driving household member and then guess what? We would have a massive shortage and everyone smart enough not to watch those idiots on TV would also panic.
For once I think the "news" people in question are behaving with some care to the bad effect they have on society. They are not informative and they know it. They can only inflame. That's all they know how to do. Their silence to me shows that they are fully aware of it, too.
I thought that the local news media (TV, radio & print) in New Orleans were well above what I saw elsewhere and on the national level.
Post-Katrina they have outdone themselves ! Best is Channel 6 in a half hour add-on from 10:30 PM to 11 PM. 5 minute "Hot Seat" where TOUGH questions are asked (if longer than 5 minutes *NO ONE* would agree to the interview !) Mental Health Monday, Race Relations Tuesday, FEMA Friday. So little fluff (OK Mardi Gras Day), so much information and REAL discussions ! NBC runs a small bureau out of their studios and they contribute stuff that did not make the cut for national news.
It can happen !
Best Hopes for REAL News,
Alan
Refiners probably did see some of this coming.
But you have to understand the prior 20 years to put this in context. Refiners went nuts on capacity expansion in the late 70's and early 80s. Then crude price jumped up due to the Iranian revolution, CAFE standards were implemented, and other conservation efforts came into play. The demand curve dropped and went sideways for a decade or so. In this period, refiners got hammered. They had real trouble getting capital to do much more than meet the environmental rule changes coming at them -- both on emissions and on clean fuels. Anyone asking for money to add capacity, except debottlenecking as part of a clean fuels project, was laughed out of the boardroom.
If you look back, the Majors dumped refineries to smaller companies because they didn't want to pony up the capital in the "loser" end of the business. Think Exxon selling Bayway to Tosco or Chevron Pt. Arthur to whoever it was. Many smaller refiners just shut when their exemptions to the clean air/fuels regs finally ran out. The API and other trade groups were quite vocal that refining would not be profitable unless the excess capacity was allowed to wither relative to demand.
We still refine far more crude than in 1990, but it's just not enough to meet the crazy demand from the SUV nation.
But you can also go look in the OG&J and see a bunch of projects in the pipe to add refining capacity around the globe. Probably will be built just in time for a new round of CAFE std increases to make them moot.
How did refining ever get to be the "loser end of the business"? They do have a monopsony, after all. Twenty five years ago oilcos as a group had to have made a decision to make