Oil Market Assessment - September 12, 2001
Based on Energy
Information Administration (EIA) contacts and trade press reports, overall U.S.
and global oil supplies appear to have been minimally impacted by yesterday's
terrorist attacks on the World Trade Center and the Pentagon. Rumors of scattered closures of U.S.
refineries, pipelines, and terminals were reported, and Louisiana Offshore Oil
Port operations were partially suspended. While the NYMEX and New York Harbor
were temporarily closed, operations are expected to resume soon. Most, if not
all petroleum industry infrastructure is expected to resume normal operations
today or in the very near term.
Prices at all levels (where markets were open) posted increases
yesterday, but many prices fell today, as initial reactions subside.
This event occurred
against a background of already tight crude oil and product markets in the U.S.
and worldwide. Even prior to
yesterday's events, global oil markets were expected to continue tightening
through December, with WTI rising to the $28 to $29 level as the supply surplus
from earlier this year continues to erode.
Stocks were seen as drawing but remaining high enough relative to last
year that crude prices were likely to remain several dollars lower than the very
high prices seen a year ago. This,
of course, assumes normal weather, a sluggish economy, no Iraqi outages, rising
non-compliance by OPEC 10, and no unusual logistical or refinery problems.
Any event (such as continued draws, outages,
weather, or Mideast tensions) could act as a catalyst to alert markets to the
potential for very tight supplies this winter, and oil prices could swing
upward. While yesterday's
events could serve as such a catalyst, OPEC has assured us that oil supplies
will be maintained. Resuming full U.S. downstream operations should also help to
calm any initial wholesale and retail "kneejerk" reactions.
U.S. supply and demand fundamentals feature
relatively low inventories for crude oil and petroleum products, and moderate
concern over potentially tight supply/demand conditions during the coming
winter. As of the week ending
September 7, EIA data show domestic crude oil inventories 6% higher than a year
ago, but below the seasonal average for recent years. Distillate inventories stand 9% above
year-ago, and gasoline stocks nearly identical to last year, but both are near
the low end of their seasonal average range. Relative inventory levels vary by
product and region, with crude oil and distillate stocks in the Midwest (PADD 2)
one of the areas of most concern.
Refinery utilization is reported at 95% of operable capacity.
There have been scattered reports of sharply
increasing prices at both wholesale and retail levels for gasoline and diesel
fuel. At present, these appear to
be relatively isolated panic reactions due to buying and/or retailers
fears of product outages, and are expected to subside once it becomes clear that
product flows will remain uninterrupted.
While the bulk of energy trading operations are
located outside of New York (primarily around Houston), a number of large energy
traders, are located in or very near the World Trade Center. Most Houston-based operations and their
off-exchange trading systems are in operation today. Additionally, the International
Petroleum Exchanges (IPE) contract will serve as the worlds benchmark, until the
NYMEX is operating again. Access to
these important off-exchange markets and the IPE provide a critical outlet for
spot purchase and risk management transactions.