This Week in Petroleum 9-26-07
Posted by Robert Rapier on September 26, 2007 - 7:00pm
Three weeks ago I wrote that I expected gas prices to rise, which would be unusual for this time of year:
I predict that prices will continue to rise. I think they have to. I also think we will see the ramifications of present inventory levels for quite some time. On the other hand, we did go into the end of 2003 with inventories in this range, so we do have some history suggesting that levels can recover without requiring sharply higher prices. But don't bet on it.
The Energy Information Administration, the same outfit that puts out This Week in Petroleum on Wednesdays, publishes a gasoline price survey on Mondays. The report can be found at:
Weekly U.S. Retail Gasoline Prices
This week's report showed that gasoline prices, which normally start to free-fall at this time of year, indeed headed back up this week.
The last couple of TWIPs have shown that gasoline inventories are slowly growing (which will favor lower prices) but inventory levels are still incredibly low (which will support a higher price level). What I think we will see are pretty healthy prices through the winter, and then we will start a Spring climb again from a higher base. This should again lead to record high prices by May of next year.
Gasoline prices in California have risen more than the national average. The L.A. Times commented on the "unusual September climb":
Drivers took a hit at the pumps over the last week, the Energy Department said Monday, as gasoline continued its unusual September climb in most of the nation and U.S. diesel prices topped $3 a gallon for the first time in more than a year.
The average price of a gallon of self-serve regular gasoline in California rose 5.7 cents to $2.961, which was 20.1 cents above the year-earlier price, according to the Energy Department's weekly survey of filling stations. Nationally, gasoline rose 2.5 cents to $2.812 a gallon. That was 43.4 cents above the price in the same period a year earlier.
TWIP
This week's numbers were contrary to most expectations, but there isn't too much to get excited about. Refinery utilization was down, but that is to be expected as some areas have started fall turnarounds. If you look at the history, the end of September almost always sees utilization fall by several percentage points. Gasoline demand is reportedly up over this time last year, but is falling as might be expected for this time of year. The important items from this week's report (to me):
U.S. crude oil refinery inputs averaged 15.0 million barrels per day during the week ending September 21, down 339,000 barrels per day from the previous week's average. Refineries operated at 86.9 percent of their operable capacity last week. Gasoline production fell compared to the previous week, averaging 8.7 million barrels per day. Distillate fuel production rose last week, averaging 4.1 million barrels per day.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose by 1.8 million barrels compared to the previous week. Total motor gasoline inventories increased by 0.6 million barrels last week, and are well below the lower end of the average range. Distillate fuel inventories increased by 1.6 million barrels, and are in the upper half of the average range for this time of year.
Over the last four weeks, motor gasoline demand has averaged nearly 9.4 million barrels per day, or 0.4 percent above the same period last year.
Analysts had expected a fall in crude inventories, a smaller increase in gasoline inventories, and most notably for refinery utilization to be around 89% (instead of 87%).
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http://science.reddit.com/info/2tsb8/comments
if you are so inclined...
A comment on gasoline inventories..
I have been trying to find the average weekly build data, because eyeballing the graphs it would appear that although there have been modest builds the last 2 weeks, they have actually been less than the average builds for that time period. This would mean that even with the increase instead of a loss, we are actually falling even further behind relative to the seasonal average.
True. And (by looking at the graph) there seems to be a drawdown on the stocks in a month or two, of about 5M. That will get the stocks very, very close to the 185M level... I remember hearing around here that that was the minimum possible stock level.
I guess we might be testing that fact before long.
One interesting thing about the recent http://futures.tradingcharts.com/chart/CO/B7 > price action in crude oil is that it would appear to be being driven by strong fundamental factors. Over the past month, crude oil has pushed higher steadily day by day. This isn't action driven by news or rumors with surges and pull backs, this is unidirectional and with a purpose. It suggests that something is changing in the underlying supply and demand dynamics and that this surge could take us to $100 and beyond.
Tea leaves? Perhaps, but these markets are driven by the commercials and they have their finger on the pulse of supply and demand.
Julian Darley has http://globalpublicmedia.com/chris_skrebowski_on_record_high_oil_price > interviewed Chris Skrewbowski on the current supply demand situation over at Global Public Media and his conclusion is that there probably won't be enough supply to meet the increased demand of the northern hemisphere winter.
Something will turn the Excursion drivers into Prius owners and my guess is it won't be our telling them hybrids are good for the planet!
IMO, supply and demand figures are becoming less meaningful. As more ME oil is pulled off the futures markets and sold through contracts in non-US dollars, more activity in dollars will be driven to the dollar based hubs.
It was reported last week that Shell bought more Omani hub based UAE oil than is actually produced there. Why? Probably because that's the only place they can get it. Now the banks are going to have to find the oil to fill the orders or sell their contracts at a loss.
People seem to forget that the Oman and Brent Hubs are skeletons of what they once were. Saudi Arabia is clearly not selling much oil there.
This is a weak dollar phenominon. The problem is few analysts can see pricing in three demensions, supply, demand and currency exchange.
if would probably make more sense to look at the week to week change in a 4 week rolling average. The data are on the iffy side so when you start taking differences of data with big error bars you'll get all kinds of noise.
make a spreadsheet with the DOE data if you really are interested.
One note of caution. Just because people said 185 million was the limit doesn't make it so. Given the price of oil now, there will be a large incentive to find ways to work with less stock. The carrying cost is painful.
Has anyone else noticed the build in the SPR of late?
There has been no announcement from any agency I can find that stated the SPR was going to start building crude supplies - and the current political and economic climate would have me believe that there are better times (for those in power's careers, not for US energy security) to be building crude inventories.
Granted, we are entering refinery turn around season, but still - this seems odd to me, in a time when the administration had to be hoping that inflation prints low, enabling more money printing (I mean rate cuts).
As of 9/6/2007, we had 690300K in the SPR. This number had not changed for the previous 14 weeks.
Two weeks ago, the week ending 9/12/2007 report showed a 100K build in the SPR, brining it to 690400K.
Last week's report for the week ending 9/19/2007 showed an increase of 500K, bringing the SPR to 690900K.
Then, today's report for the week ending 9/26/2007 showed a meaningful build of 1600K to 692500K. A level we have not seen since October of 2005 when we started the Katrina drawdowns.
We are now just 8M barrels away from the all time high of 700500K reached in September of 2005.
Anyone have any information to add?
Strategic Petroleum and Other Oil Reserves
U.S. Strategic Petroleum Reserve
Record High Crude Bottles Up SPR Buy Plans
Courtesy of Dante at PO.com:
SPR Awards Exchange Contract to Shell Trading
He thinks there may have been a delay due to the storms that resulted in the SPR increase not showing up until now.
Oil is cheap now - makes sense to buy before it goes higher. And it WILL go higher:
1) Depending on how quickly global refinery expansion occurs, we could see $100 by June.
2) Dollar will keep slipping, forcing oil to rise in response.
The reading I'm doing on refinery capacity this week leads me to see $75/ (Euro)50 as a new price floor. We're still not seeing much demand destruction in transportation, so demand should stay high, steadily bidding up the price for finished product. Until there's more refinery capacity there's no incentive for OPEC to raise output.
In the medium term, OPEC faces the potential of rising non-OPEC production (and substitutions - bio fuels, tar sands), but I'd be astounded if that grew fast enough to affect prices over the next 18 months. Even if non-OPEC liquids grew more rapidly, OPEC could always cut production slightly to keep a $75 price peg.
Something seems to be in error with east coast PADD-I gasoline data this week, unless EIA has updated their data.
Stocks are up 2.1 mb
Imports to PADD I are up 96 kbpd
Production is down 182 kbpd
Net is down 86 kbpd
With stocks up 2.1 and a net weekly loss of 600 kb that tells me demand was down by 385 kbpd , however total US demand only changed by minus 12 kbpd . I can’t imagine shifting that much gas around between PADD areas, if so it should show up in other PADDs
Another interesting thing:
Last year at this time reformulated gas was 18 cents/gal higher than regular. This year regular conventional is 2 to 4 cents higher per gal.
Last year the per gallon futures on ethanol was a couple bucs higher than the current $1.55.
Wonder what ethanol bottom line is looking like this quarter.
Could be the added propane used to make the winter gasoline, like was explained last week?
I appreciate how the TOD posters make sure to take into account seasonal characteristics in trends. Lately I have seen way too many economic indicators graphed elsewhere that show trends only over the last year. I really think we have to put a moratorium on any charts that have a time scale less than a few years.
Another way to fudge is to choose a convenient end date. I'd say everything looks up, up, and away!
From EIA - International Energy Data and Analysis
World Crude Oil Production, 1973-2004
Million Barrels per Day
Bondad, who is otherwise ok, does the recent trending a lot:
http://bonddad.blogspot.com/2007/09/gas-market-update.html
for an example of trends only over the last year for gas.
bjj,
That is still one of the most fascinating charts to me, and always keeps me on my toes....
I mean, you want to see the peak, what must have been the REAL CLASSIC PEAK, look at that world profile between 1974 and 1982....is that CLASSIC or not?
Man those were the days....you could get V-8 car engines just for being willing to haul them away, after all, what IDIOT would own a V-8 car coming into what was sure to be a phenomonal crisis!! If I had told you that 20 years from the late 1970's, you would see V-10 and V-12 engines in cars and trucks, you would have said I was COMPLETELY MAD!!
In central Kentucky, a massive Coal to Liquid plant was planned in the late 1970's...it was a done deal, becuase the only thing that could stop it was if crude oil went back down, and what IDIOTIC MORON believed that was going to happen? Helll, even the CIA was telling Jimmy Carter that access to oil was declining around the world.
I still have a copy of a book by a convicted moonshiner who was using solar panels to distill alcohol at home so he could get around...he actually got a permit from the government to do it, so desperate was the government to learn how to make what we now call "bio-fuel".
And my father, who commuted 22 miles to Fort Knox as a civil servent mechanic (working on Army tanks and vehicles) decided he had had enough....so he traded a 1971 Oldsmobile in for a 1976 Diesel Volkswagen Rabbit....even he had thrown in the towel, and admitted that gasoline and oil prices were NOT going to come back down....with the Diesel, his cost per mile actually declined by over half right into the face of the highest oil prices in history....
And then....1982. Oil prices collapsed, the energy industry, both fossil fuel and alternative collapsed. Companies and individuals who had bet the best years of their careers on the PEAK (and I mean look at the chart....it looks even more like a true peak after the fact than did at the time....IT SHOULD HAVE BEEN THE PEAK! But the rear view mirror failed!
Look at the world chart above....consumption did not return to the old 1979-80 high for fifteen years!!
So anytime a "PEAK NOW, HOW CAN IT NOT BE! IF YOU DON'T UNDERSTAND THAT YOUR A STUPID DENIALIST!!" type talks to me....I smile....you bet your money, your lifestyle on your own infallable certainty. As for me, I am hedging. There are a hundred good reasons to reduce fossil fuel consumption. The assurance of peak is not one of them. We better hope that this time it is not a false alarm, or anytime to get people to make commitment to fossil fuel consumption will be lost for a generation....and there really will be little chance of saving ourselves this time.
RC
The big difference between now and then is that if we did find another North Sea there are a whole bunch of Nations ready to mop it all up -not just America, Europe and a few others. The world has changed significantly since the 70s, everyone is coming to the party when the glass is half full aiming for the American Dream at exactly the point that it is about to turn into a nightmare...
Regards, Nick.
Oil prices did not plummet solely because of the North Sea and the North Slope.
Oil prices crashed in 1985-86 because the US convinced the Saudis to open the floodgates. Even though it destroyed the Texas oil industry (sorry, friends of GHWB), it also destroyed the oil revenues of the Soviet Union. That, more than anything, hastened the collapse of the USSR.
Sort of. What were the Saudis going to do? Pump nothing? They held the peg at $30 for as long as they could without going bankrupt.
Uh... NO.
Saudi exported 2.2 Mbbd in 1985, when production was lowest, and prices, in inflation-adjusted 2006 dollars, were $40/bbl.
Revenues = $88M/d
The following year, exports were 3.3 mbpd, a 50% increase. But oil prices in 1986 had fallen to $20/bbl (2006$).
Revenues = $66M/d
SA LOST money by boosting production. They would have had to more than DOUBLE production in order to break even - and that would have sent prices even lower. Ergo, the decision to raise output was obviously NOT driven by financial/economic considerations.
mostly wrong.
OPEC production was spiraling down fast as demand dropped hard and non OPEC production ramped up.
Saudi had seen their production drop from north of 9 MBD to 2 MMBD as they were the only OPEC player willing to cut production and be the swing producer to keep prices up around $30/bbl. At the rate their production was dropping, they'd have been at zero in about a year. They knew full well they'd be taking short term pain to force the others to take a share of the production cuts. They just didn't plan on the pain lasting a decade due to to cheating/economic problems/conservation etc. They chose to defend market share and from time to time hammered Nigeria, Iran, Venz and the other cheaters. Saudi could afford to take a short term hit. The others, not so much.
It was the peak. In the US, remember? We drilled hellbent in the '70s and made good money. Paid my sibling's college bills in the 1980s.
And people acted out of fear. The markets disrupted, reorganized and adjusted to the new Situation that THE US (#1 producer and consumer!!!) HAD PEAKED. The FIRST major producer (unless you include Austria:-) to do so. And as you know, USA = WORLD, doesn't it?
But have you forgotten that even "The Global 2000 Report to the President" 1980/82 was following Hubbert's prediction of recoverable oil of ca. 2,000 billion barrels? Deffeyes' peak (Dec. 2005) still holds to a number barely above this one.
And EVEN Ehrlich (in 1977: EcoScience: Population, Resources, Environment), the Pessimist Pope was quoting 1,900gig. (also based on Hubbert) Not far off?!?!?
You (and everyone else back then not making the basic analysis - which is probably your point) were confusing above and below-ground.. Geological expansion was still possible. (admitted: few thought it was probable)
I know you're worried about the hype which goes along with the bad timing of the predictions from the PO community (Campbell) - but your fear that we are about to hit the PO snooze alarm AGAIN is unfounded.
The taps are open. Supply is NOT increasing. Capacity is being used to 100%. Demand destruction has begun.
What more do you want??? If you feel the need to hedge, more power to you!
Cheers, Dom
Just remember the Golden Years, all you at the top!
I won't call anyone a stupid denialist.
Specially to people whose only interest is to stir up confusion and doubt, while deep inside they are fully aware of the problem and "denialist" is the worst word to describe his mental state.
I would call you an actor playing devil's advocate. And only because you would really want that to be the truth. Hell, I also wanted it to be the truth. I hate being called to reason when I'm messing things up while partying. I hate hanghovers. I hate the headaches that follow them.
The EIA guys must really be in la-la land, as per the standard operating procedure for this administration.
If you look at their World Oil Market Analysis document here,, even though it is dated 2007, they show no historical production past 2004. World liquid production goes straight upward to about 120 million bbls per day by 2030.
And best of all, "In North America, U.S. output that rises to 10.1 million barrels per day in 2020 and remains fairly flat through the end of the projection period is expected to be supplemented by significant production increases in Canada."
This is is the best news I've heard all day! The US is going to reverse a 35 year decline, and get to 10 million bbls/day!
It seems that the EIA "lost their minds" sometime around 1995-1996. Of all the things they miss, they miss their minds the most and they haven't found them again.
I noted the same thing on page 32 and I had to laugh, cry, and then wonder what they are taking/smoking?
But for a good time, plot the EIA's production curve out to 2030 as if you were during a a Hubbert Linearization. Besides a "permanent" dog-leg right unlike anything we've ever seen. And if you go to the EIA's site and download the estimate for growth out to a "peak" in 2044, and then plot out their R/P of 10, you'll get the most amazing collapse curve you've ever seen.
I ought to publish my spreadsheet out to the web, but I'm a little busy.
Perhaps not free fall, but prices keep edging down in T-town. I keep wondering if it is refinery proximity, or crude proximity, or just what.
A question: Is the refinery structure in the US made more brittle by the incremental expansion of refineries? It's hard for me to imagine that when the decision is made to expand, the end result is not some combination of old and new technology and/or engineering. I know that is what we saw in IT, modernization always left a mixed residue.
Thanks for any info.
There is no cure for stupid.
Short answer: No.
Refineries expand incrementally because its cheaper than adding new greenfield refineries. The economies of scale are all-important for refining, and the margins have been low for decades. Even if you could build a new refinery for the same cost-per-barrel as incremental capacity, that new refinery would add far more capacity than the market could support - it's a much safer bet to increase capacity gradually so that prices are not depressed by a glut of refined products.
The surge in refining demand is relatively recent, so if refining margins keep rising, they may reach the point where new US refineries would be profitable - but I doubt it.
Unlike China, which plans to double refining output by 2015 with, from 6,600 Mbpd with 30 new refineries, to over 13,000 Mbpd. (At least, that was the plan in 2006.)
===============
FYI: Current US refining capacity is around 18,000 Mbpd.
Global capacity is about 85 Mbpd - and has been flat for 2007, which is the primary reason oil prices have stayed high. Capacity isn't projected to increase much until mid-2008, possibly by 1.5% or more, and accelerating somewhat after that. Although, obviously, increases much past 2010 will depend entirely on rising crude supplies (peak?) and product demand (conservation/hybrids?) to keep prices high enough to justify further expansion.
kinda hard for gasoline prices to fall when they are sitting right on top of crude oil.
This spring we had NYMEX RBOB at $2.30-40/gal with crude a $65 ish. Crack spread north of $30/bbl.
Now we have RBOB at $2/bbl with crude at $80 for a spread of just $4/bbl.
Refiners won't tolerate a zero margin on gas so it really cant fall from here.
Another way to look at it is we've had our gasoline proce drop. Just OPEC lifted the entire complex wiping it out. net net.
OPEC?
Rather Peak Oil.
Just so everyone understands, my point is NOT that we are not now at peak world production.
We may very well be. We simply can't know.
But what we can know is that consuming more and more and more petroleum is bleeding us (and by us, I mean the nation and the world) to death.
Reduction in fossil fuel consumption IS the only way forward. That's what some folks, who cannot see a world without ever increasing fossil fuel consumption as anything but a helll beyond enduring want to deny.
If I believed that reducing fossil fuel consumption would cause the "big die off" and a return to the stone age, I would deny and fight it with all my ability.
However, I don't believe that for a second. In fact, what will create the helll is the attempt to keep increasing fossil fuel consumption.
Reduce petroleum consumption. That is the absolute holy grail.
RC
The crude peak was in 2005. AL in 2006. It's behind us.
Matt
Even if we haven't seen absolute peak, Mr. Conner, We have seen the limits of the petroleum system.
Even if we end up producing more than 90mbd (which we won't, I agree 100% w. Matt), The US, Europe, OECD will not have more oil at disposal. Roger, your argument is passe, one that might have made sense two years ago.
Even if production is up, this chart will not be changed:
Exports are down 5%. Period. This will never be changed.
Down, down, down. It will never be changed.
Roger, THIS is the first rear view mirror view.
It happened. It is behind us. It will never be changed.
---------
Just remember the Golden Years, all you at the top!
You have picked an appropriate metaphor, as it will be just as unattainable as the holy grail.
Petroleum consumption is a black box that encompasses literally millions of unidentified critical processes and junctions in a way of life that supports 6.6 billion people.
Much like blood in the bloodstream that carries nutrients and energy to millions of critical processes in the body, reducing the flow or availability of blood results in shock to the entire system, and the system shuts down.
The alternative method to reducing the need for blood is to remove a large part of the body that uses it. Like an arm and a leg. Realizing, of course, that it will be immensely painful to do so, and afterwards while your use of blood is lessened, so is your ability to do useful work, to support, or to produce anything of value or even necessary for survival.
So, to reduce oil consumption, we can induce shock in the economy and our living systems and things come to a grinding halt. Or, we can amputate off a part of the economy and our way off life, and the dismembered part along with all the access it provided will die. And the amputation must be deliberate and managed, because otherwise we're just hacking it off, which will then induce shock.
Who wants to be the first to step up to say that in order to ensure survival, we must let millions of starving, sick, or elderly people die? That "we" should annihilate "them", be either of the parties Americans, Jews, Russians, Christians, Muslims, Mexicans, Japan, China, or the Middle East?
How many will sit idly by and gamble that our own energy and economic shock will not result in a metaphorical equivalent of biological death?
The future is defined by our decisions today. Our ability to meet this crisis down the line is addressed by current action. So what are we doing, is it working, and will it be enough?
So far the answers are "same old", "no", and "not bloody likely, more likely bloody".
I have been looking for a few graphs/data and I figure the people here know where to find what I am looking for.
Basicly what I would like to see is a graph of the price of oil in euros vs dollars. The problem is that as oil is prices in dollars it is hard to get a graph that has already done the conversion.
Thanks
Here ya go:
Glad to see this come around again, as I have been eyeing it since Rembrandt's last OWM report and wondering: how much of that spread is due to dollar devaluation, and how much due to the many other regional factors that come into play? Anyone care to comment on that?
--C
Energy consultant, writer, blogger www.getreallist.com
More demand destruction is going to happen in the United States than in Europe or East Asia. The massive US trade deficit and declining US Dollar will see to that.