This Week in Petroleum 3-28-07

The supply situation is quickly coming to a head, and many questions will be answered in the coming weeks. Will OPEC increase oil production? Can they? Will there be any relief from rising gasoline prices? Will gasoline demand remain strong in the face of the recent price spike?

The trend at this time of the year – because some refineries are offline for maintenance – is that crude stocks are generally rising and gasoline is generally falling. (The trend for distillates is very dependent upon the weather). That has been the trend for several weeks, but this week crude oil inventories dipped slightly. This will happen as refineries start to come out of turnarounds, with the trend of falling crude inventories usually starting in mid-spring and continuing through the summer. Given that crude inventories are 12 million barrels below where they were at this time last year – and peak season is still in front of us – I expect that there will be a call for OPEC to open up the taps some before the end of summer.

Refinery utilization number crept up this week – from 86.3% to 87%. This may suggest that the majority of the turnarounds are complete, but if so that would be somewhat earlier than normal. It would not surprise me to see utilization dip again within the next couple of weeks before making a run to the upside of 90%.

Gasoline stocks fell for the 7th straight week, although by less than expected. This is because high wholesale prices in the U.S. always attract the attention of exporters, and a rash of gasoline imports did arrive this week. Gasoline imports rose above a million barrels per day for the first time since January. However, they will need to remain high else gasoline prices may continue to head higher. According to This Week in Petroleum:

To help gasoline supplies keep pace with demand increases that are likely over the next several weeks, total gasoline imports will need to remain above 1 million barrels per day most of the time.

While there are many statistics analysts can watch in monitoring gasoline market conditions, two statistics that they may want to add to their arsenal over the next several weeks are crude oil inputs to refineries and total gasoline imports. Combined with information on gasoline inventories and demand, they will provide a more enlightened picture of current market conditions and insight into which way gasoline prices might head. Until domestic gasoline production and imports both increase substantially, retail prices are not likely to experience a noticeable downturn.

Despite the higher prices, demand continues to run ahead of last year’s level:

Total products supplied over the last four-week period has averaged 21.1 million barrels per day, or 2.4 percent above the same period last year. Over the last four weeks, motor gasoline demand has averaged 9.2 million barrels per day, or
1.6 percent above the same period last year. Distillate fuel demand has averaged above 4.4 million barrels per day over the last four weeks, unchanged compared to the same period last year. Jet fuel demand is up 3.8 percent over the last four weeks compared to the same four-week period last year.

Stay tuned, as it promises to be a very interesting situation over the next few months.