International crude oil prices were unsettled
during June, as efforts to reduce the flow of product into oversupplied
world markets continued. In addition to output reductions pledged in the
Riyadh Agreement of March 1998, Saudi Arabia, Venezuela, and Mexico announced
further crude oil production cuts of 225,000 barrels per day, 125,000 barrels
per day, and 100,000 barrels per day, respectively. The revised production
quotas are to go into effect on July 1, 1998 and remain in place for the
rest of the year. Despite these cuts and other supplementary reductions
announced by several other member-nations of the Gulf Cooperation Council
(GCC), prices declined markedly through mid-June. The production decreases
were perceived as inadequate to offset the effects of crude oil stocks
at near-saturation levels in the industrialized West and the deepening
economic difficulties in Asia. Nonetheless, prices experienced a rally,
particularly in the United States, at mid-month just prior to the quarterly
meeting of the Organization of Exporting Countries (OPEC). Anticipation
that production quotas could be significantly lowered, coupled with regional
markets technical factors prompted prices to move higher. OPEC announced
a new round of output cuts totaling 1.355 million barrels per day on June
24. With the new cuts added to the earlier round of curtailments (1.245
million barrels per day), OPEC has promised to cut production by 2.6 million
barrels per day, or virtually the same amount it added when the group increased
its production by 10 percent to 27.5 million barrels per day at the beginning
of 1998. While some expressed disappointment at the amount, and cited concerns
about how well enforced the quotas would be, prices remained revitalized
for the remainder of June.
| Figure HL1. |
Crude Oil and Wholesale
Petroleum Product Prices |
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Despite robust demand in the United States, crude oil and finished products
price levels dropped during June, as markets remained under the influence
of abundant stockpiles. Crude oil continued to be the most sensitive element
in the complex, with global market circumstances playing a significant
role in the direction and level of prices. While supply data indicate crude
oil stocks fell for the first time this year, June prices for key streams
lost ground on average from May levels. More specifically, the ongoing
glut of product available throughout U.S. and world markets led benchmark
West Texas Intermediate (WTI) below the $12-per-barrel mark, a level not
seen since August 1986. Prices for finished products largely followed the
trend seen for crude oil, although changes in direction occurred with less
magnitude. Data reflecting gasoline and distillate demand indicate solid
growth, while refinery utilization also increased from last month. Average
U.S. gasoline and No. 2 distillate prices continued to be substantially
below those seen last year at this time at both retail and wholesale. Counter
to the general trend, gasoline prices on the West Coast rose for much of
the month, due to a variety of influential factors including news of the
OPEC crude oil production cuts and regional refinery problems.
June market and sales activity for crude oil and the principal petroleum
products are summarized in the following sections.
Crude Oil
The daily spot price for West Texas Intermediate (WTI) crude oil at Cushing,
Oklahoma fluctuated significantly during June. Opening at $15.21 per barrel,
the price moved to the month's high of $15.24 per barrel on June 4. Reacting
to continued reports of high inventories and dissatisfaction over the degree
of proposed crude oil production cuts by major exporters, the price began
to plummet. The month's low of $11.69 per barrel, reached on June 15, represented
the lowest level the price had reached in almost 12 years. However, the
price rebounded sharply during the following week on expectations of further
production cuts to be announced by OPEC and by unexpected stock draws.
The price closed the month at $14.30 per barrel, 91 cents lower than where
it began June.
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Average crude oil prices for June show significant decreases from May rates
in all categories of sale. The average domestic crude oil first purchase
price dropped $1.49 (13.0 percent), to $10.00 per barrel.
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The average free-on-board (f.o.b.) cost of imported crude oil declined
23 cents (2.0 percent), to $11.07 per barrel. The average landed cost of
foreign crude oil dropped 36 cents (2.9 percent), to $12.09 per barrel.
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The monthly average refiner acquisition costs for domestic crude oil fell
$1.04 (7.7 percent), to $12.48 per barrel. The average cost of imported
crude oil to U.S. refiners decreased 99 cents (7.8 percent), to $11.67
per barrel. The composite refiner acquisition cost of crude oil dropped
$1.02 (7.8 percent), to $11.99 per barrel.
Petroleum Products
Motor Gasoline
Primarily due to high stock levels, the daily spot price for unleaded regular
gasoline at New York Harbor lost ground during June despite increased consumer
demand for the product. Shortly after the high of 47.4 cents per gallon
was reached on the opening day of the month, the price began to deteriorate.
Subsequent to hitting the low of 42.0 cents per gallon on June 18, the
price began to recover along with those of other major products in the
complex. Closing June at 43.6 cents per gallon, the price dropped 4.2 cents
from June's opening point.
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Monthly average prices for gasoline decreased during June. The average
price for motor gasoline retail sales by refiners inched down 0.5 cent
per gallon to 70.5 cents per gallon, while the average wholesale price
fell 2.3 cents to 55.6 cents per gallon. Including data reported by a sample
of motor gasoline marketers, the national average retail price at company-operated
retail outlets dropped to 69.4 cents per gallon, a loss of 0.7 cent. The
average wholesale price fell 2.3 cents, to 56.0 cents per gallon. The average
dealer tank wagon (DTW) price declined 1.4 cents to 63.2 cents per gallon.
The average rack price decreased 2.7 cents to 53.8 cents per gallon. The
average bulk sales price fell 2.9 cents, to 47.3 cents per gallon. The
margin between reformulated and conventional gasoline prices dropped to
4.1 cents at retail, and 7.7 cents at wholesale. The spread between conventional
and oxygenated gasoline prices increased to 8.5 cents at retail and 9.3
cents at wholesale.
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Sales of finished motor gasoline by refiners increased during June. Total
sales rose 11.4 million gallons per day (3.0 percent), to an average of
388.1 million gallons per day. Retail sales grew 1.1 million gallons per
day (1.7 percent), while wholesales rose 10.3 million gallons per day (3.3
percent). Rack sales explained 60.2 percent of total wholesales, while
DTW and bulk sales made up 24.7 percent and 15.1 percent, respectively.
Reformulated gasoline (RFG) constituted 30.1 percent of total motor gasoline
sales, while oxygenated gasoline made up 2.1 percent of sales.
No. 2 Distillate
The daily spot price for No. 2 heating oil at New York Harbor reacted in
a similar fashion as other products to brimming stock levels prices during
June. Opening at 38.8 cents per gallon, the price declined slowly over
the next several weeks before reaching the low of 36.2 cents per gallon
on June 18. Following the lead of other major products' prices, the No.
2 heating oil price rose during the next-to-last week of the month, and
reached its high of 39.9 cents per gallon on June 24. Closing at 38.2 cents
per gallon, the price was less than a penny lower than where it started
the month.
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No. 2 distillate prices fell in all categories during June. The national
average residential price dropped 3.7 cents to 81.1 cents per gallon, while
the average wholesale price fell 3.2 cents to 44.1 cents per gallon. The
average price for No. 2 diesel fuel at company-operated retail outlets
decreased 2.8 cents, while the average wholesale price fell 3.4 cents.
The margins between low- and high-sulfur diesel fuel prices were 0.9 cent
at retail and 2.8 cents at wholesale.
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As in May, refiner sales of No. 2 distillate were mixed during June. Total
sales grew 10.8 million gallons per day (7.7 percent), to 150.3 million
gallons per day. Sales of No. 2 fuel oil fell 4.4 million gallons per day
(13.8 percent) while sales of No. 2 diesel fuel rose 15.2 million gallons
per day (14.1 percent). Low-sulfur diesel fuel sales comprised 81.5 percent
of all refiner diesel fuel sales, and 66.7 percent of all refiner No. 2
distillate sales.
Residual Fuel Oil
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June monthly average residual fuel oil prices declined in all sales categories.
Refiner prices for low-sulfur residual fuel fell 1.5 cents to 36.1 cents
per gallon at retail and 2.6 cents to 29.3 cents per gallon at wholesale.
Refiner high-sulfur residual fuel prices decreased 0.5 cent to 29.6 cents
per gallon at retail and 1.2 cents to 27.0 cents per gallon at wholesale.
Including data reported by the sample of residual fuel oil marketers, the
average low-sulfur price decreased 0.2 cent to 36.2 cents per gallon at
retail and 2.4 cents to 29.7 cents per gallon at wholesale. The average
price for high-sulfur residual fuel oil fell 1.2 cents to 29.8 cents per
gallon at retail, and 1.3 cents to 27.2 cents per gallon at wholesale.
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Sales of residual fuel oil by refiners increased in all categories during
June. Total sales rose 4.1 million gallons per day (14.8 percent), to 31.8
million gallons per day. Low-sulfur residual fuel sales increase 2.9 million
gallons per day (37.7 percent), while high-sulfur residual fuel sales rose
1.3 million gallons per day (6.5 percent).
Other Products
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Prices for other products prices declined across the board during June.
Refiner propane prices decreased 2.1 cents per gallon at retail, and 2.6
cents per gallon at wholesale. Including the sample of propane marketers,
the average residential propane price fell 3.1 cents per gallon. The average
end-user and wholesale prices for propane dropped 2.1 cents per gallon
and 2.6 cents per gallon, respectively. Kerosene-type jet fuel, aviation
gasoline, kerosene, No. 1 and No. 4 distillates prices declined at both
levels.
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Sales of products included under this heading were mixed. Sales of kerosene
and kerosene- type jet fuel rose at both levels. Aviation gasoline sales
rose at retail but fell at wholesale while propane, No. 1 and No. 4 distillates
sales declined at retail but increased at wholesale.
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