This Week in Petroleum 7-18-2007

It’s been a while since I updated one of these, but this seems like a good time for an inventory review. Crude inventories are very high, distillate inventories are about normal, and gasoline inventories were gradually clawing their way back, but are still very low for this time of year. But in a big surprise this week, gasoline inventories sharply reversed direction from their recent trend. (However, falling inventories are the norm for this time of year).

Some highlights from the text file:

Refineries operated at 91.0 percent of their operable capacity last week. However, gasoline production dropped compared to the previous week, averaging nearly 9.2 million barrels per day, while distillate fuel production fell slightly, averaging nearly 4.0 million barrels per day.

Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 915,000 barrels per day.

Gasoline imports were strong while prices were at record highs. Looks like prices may need to head back that direction to attract more imports. That gasoline import number is pretty weak, considering gasoline imports have been running at well over a million barrels per day. I suspect today’s report means gasoline prices will continue their recent climb, after bottoming out a couple of weeks ago. That refinery utilization number is another big story. We have yet to see 92% utilization this summer. You have to go all the way back to 1991 to see summer utilization numbers in this range. Last year’s June number was 93%, and it was over 97% in June of 2004 and 2005.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) declined by 0.5 million barrels compared to the previous week. However, at 352.1 million barrels, U.S. crude oil inventories remain well above the upper end of the average range for this time of year. Total motor gasoline inventories fell by 2.3 million barrels last week, and remain below the lower end of the average range.

That is a sharp reversal from previous weeks, in which inventories – buoyed by very strong imports – were heading back toward the lower end of the average range. I would have to check, but I suspect gasoline inventories are back in record low territory again (for this time of year).

Over the last four weeks, motor gasoline demand has averaged over 9.6 million barrels per day, or 1.3 percent above the same period last year.

Record demand in the face of still very high prices. I don’t think people are getting the message that these new, higher prices are unlikely to be temporary. I also get the feeling that people have lost sight of the fact that despite the recent climb in gasoline inventories, they remain well below normal for this time of year.

Here are some excerpts from what OPIS published in their 7/18/07 report:

After showing some weakness earlier this week the gasoline futures market got a boost from some bullish DOE data in the form of a draw of more than 2 million bbl when the market was anticipating a build. DOE analysis shows that the four-week demand average is the highest ever. Also data from the API through the first six months of 2007 painted a strong demand picture as well.

The biggest shock was the draw of 2.3 million bbl from gasoline inventories and as the DOE pointed out most of the draw came from the finished gasoline category, while blending components was only down slightly.

Gasoline got a “triple whammy” of sorts with gasoline output slipping, imports dropping below 1 million b/d and demand moving past the 9.7 million b/d mark.

Demand for gasoline has been relentless most of the summer, according to government data. Last week, demand rose to 9.7 million b/d, and over the last four weeks demand growth is ahead of last year by 1.3%.

I will not be surprised to see spot shortages, as were caused when the recent Coffeyville refinery went down. A large refinery outage in just about any location could lead to shortages relatively quickly. But if we coast through the rest of the summer with no major hurricanes or other problems, the general public may never know just how precarious the situation was this year. To me, the country’s gas supply right now is like a homeowner without homeowner’s insurance. That’s just fine, until you need it.

12 thoughts on “This Week in Petroleum 7-18-2007”

  1. I don’t think people are getting the message that these new, higher prices are unlikely to be temporary.

    Some interesting data on buyer preference at green car congress.

    “However, actual sales of hybrid vehicles in the first half of 2007 increased more than 56% over aggregate sales in the first half of 2006, climbing to more than 181,000 units.”

    That’s still good growth, though it seems looking around me (at the Hemis and V-8 Pick-ups with paper plates) that the market is experienceing a split.

    Natually, I think the smart people have Hybrids.

  2. “I don’t think people are getting the message that these new, higher prices are unlikely to be temporary.”

    Or is it that prices are still far too low?

  3. “I don’t think people are getting the message that these new, higher prices are unlikely to be temporary.”

    Or is it that they just don’t care…yet?

    Speaking as a consumer, I have not increased my driving over prior years, I’m actuall trying to drive less. But, the current cost of gasoline is still not impacting our family budget to the point of causing pain.

    However, we live in the northeast and heat with oil. I am quite concerned about the cost of heating our home his winter.

  4. Tim,

    Why are you more sensitive to heating oil cost than gasoline? Does your annual heating oil expense exceed your annual household gasoline expense? Or is it more a matter of paying for heating oil in big lump sums instead of $50 at a time?

  5. Why are you more sensitive to heating oil cost than gasoline? … Or is it more a matter of paying for heating oil in big lump sums instead of $50 at a time?”

    Funny you should ask…after I posted this I started thinking (my fault for doing things bass ackwards)…Yes, I think part of it is the lump sum thing…I have a $500+ bill for fuel oil sitting here right now.

    I should have known better, but I really should have compared my costs first. But, my wife drives a Civic and I work out of the house. I guess it feels like we have a little less control over the heating bill.

  6. Anonymous:
    As another NorthEasterner, I have graphed our Daily Midwinter Oil Consumption at anything from 9 to 13 gallons per day. That big bill at the end of a refill period is a bit scary, but more intimidating is the knowledge that you simply HAVE TO keep your house heated. One way or another, we could drive a lot less. Both our jobs are generally within walking/biking distances, so our one car is bypassable. But you can’t really expect to even ‘hunker down at home’ during a bad patch without still running #2 oil through that furnace. I’m building some Solar Hot Air heaters for the roof, and have some other projects to keep the pipes from bursting if the power goes down or the Oil Trucks don’t come, but I’ve also just ordered an 1800watt generator as a more immediate and less sustainable hedge against ice-storms and other surprises.

    Bob Fiske – Portland ME

  7. So do those snowbirds with the big motorhomes in Arizona really end up costing us less energy than when they stay home?

    “Do your part, buy an RV!”


    (A prius and a tent is better from our perspective, but less socially acceptable.)

  8. Robert,

    I know you know this, but for many of you out there, another way to look at inventories is what we at EIA call Days Supply. If you take the absolute inventory level and divide by the 4-week moving average for demand (or crude inputs in the case of crude oil), you can see how inventories are doing relative to demand. We are now publishing these numbers (saving all of you the hassle of calculating it yourself) at:'5-Days of Supply (Number of Days)’!A1

    Looking at these numbers you can see that gasolineinventories are very low relative to demand, while distillate fuel inventories are low relative to demand.

    Absent any major hurricane damage, I don’t think we will see “shortages” of gasoline, but we could see prices going back up again next month if the inventory situation doesn’t improve. Also, as the text of TWIP pointed out today, while we haven’t seen $80 per barrel yet for WTI, we have for other light, sweet crude oils.

  9. Here is a clickable link to the spreadsheet Doug mentioned above:

    Days of Supply

    Look under the 5th tab, second column. On the basis of days of supply, Doug is right, it is very low. Especially for the summer.

  10. I personally think people ARE getting the message that higher energy prices are here to stay. However, from a purely economic standpoint, the cost of taking action to reduce individual energy usage is marginally too high for many.

    For example, I can move from my suburban home into the city to reduce my commute, or trade my SUV for a hybrid. Similarly, I can replace all my 75-cent incandescent lamps with $7 compact fluorescent units. These may all have positive Net Present Values, but the up-front investment may be prohibitive for folks with tight budgets.

    Also, the “flight to the suburbs” initiated by the Baby Boom generation will ultimately swing back to a move to the cities (I live in Calgary and am seeing it already). And we are already seeing birthrate drops in most every First World country (save the US, thanks to the Latino influence) which will further crimp future energy demand.

    So, I think we will see consumption moderate and eventually drop in the long run but, as the famous economist once said, “In the long run, we’re all dead.”

  11. $7 CFLs???? Inflation must be getting REALLY bad in Calgary.

    CFLs in multi-packs cost a dime per watt in the US. That’s $1.50 for a 15W CFL (replaces 60W) and $2.50 for a 25W (replaces 100W). At 4 hours/day usage and $0.10/kWh the payback time is less than three months.


Comments are closed.