|
Released on June 12, 2002
(Next Release on June 19, 2002)
It’s US Against the World
At a time when people in other countries are expressing displeasure against the United States, ranging from issues on foreign policy to controversial speedskating results (note the “Ohno Ceremony” by the South Koreans after they scored a goal against the United States in the World Cup), so, too, has the U.S. oil market been at odds with the oil market elsewhere. For most of the second half of 2001 and the first part of 2002, almost all of the global oil inventory surpluses compared to year-ago levels have been in the United States (see figure here). But as the surpluses in the United States are shrinking this year, there is no corresponding increase in either Europe or the Pacific. Thus, downward movements in the U.S. oil inventory situation are being reflected globally, as global oil surplus inventories are also dwindling.
Since the United States is the only country in the world to officially release weekly supply and demand data on the oil market, and consumes about a quarter of the world’s petroleum, the United States has a dominating influence on the near-term price of oil globally. The price of West Texas Intermediate (WTI) crude oil will change depending on the supply and demand balance as reported in the U.S. weekly data released by both the American Petroleum Institute and the Energy Information Administration. Changes in WTI prices are then sometimes carried forward into the Brent futures market and other markets. Thus, the weekly data carry a lot of weight with those interested in petroleum markets. This was illustrated last week when U.S. data revealed an unexpectedly large 6 million barrel build in crude oil inventories. Despite indications in the weekly data elsewhere that this build would prove to be a temporary inexplicable anomaly, and a distraction from the clear, ongoing tightening trend, markets worldwide seized on the report as evidence of still weak U.S. oil demand, as crude oil prices slipped 60 cents per barrel last week following release of the weekly data reports. Similarly, markets appear to have misread the more than 50 percent shrinkage in gasoline inventory surplus to year-ago levels last week, as well as the apparent strength in gasoline demand surrounding the Memorial Day holiday, as reported in “This Week In Petroleum” last week. It will be interesting to see if some of these perceptions reverse with this week’s data, in particular the “unexpected” partial downward correction in crude oil inventories, and the “unexpected” elimination of the remaining gasoline inventory surplus.
In any event, rebalancing of U.S. crude oil and product markets are ongoing and inevitable given deep OPEC production cuts and erratic Iraqi exports. With one more light product surplus now eliminated (i.e., gasoline), the U.S. inventory surplus has shrunk from 88 million barrels as of January 4, 2002 to just 13 million barrels now, with virtually all of the remaining surplus residing in out-of-season fuels like distillate fuel, and other oils, which are not immediately available for end-use consumption. Thus, with the United States petroleum inventory surplus shrinking, global oil markets are also tightening, since the most recent data show Europe with a small surplus to year-ago levels while the Pacific region is in a deficit. In addition, just as year-ago inventory surpluses are rapidly falling, demand in the United States seems to be picking up, with the most recent 4-week average showing a 0.2 percent increase over the same period a year ago, indicating that May marks the end of year-ago demand deficits, a month or more earlier than expected. Since the bulk of this deficit has been shown in earlier reports to trace back to one-time weather and natural gas price effects, both declining inventory and increasing demand trends are expected to continue. Given this, increased pressure on prices should be expected, unless more supply is forthcoming. And, once again, the United States will be at odds with the rest of the world, although this time it will be the U.S. oil market tightening faster than elsewhere as oil demand reaches a crescendo later this year.
U.S. Retail Gasoline Price Drops 1.7 Cents
The retail price for regular gasoline fell 1.7 cents last week, ending at 137.5 cents per gallon as of June 10. This price is 27.2 cents per gallon lower than last year. Prices were down throughout the country, with the largest decrease occurring in the Midwest, where prices fell 4.3 cents to end at 135.5 cents per gallon. Prices have remained relatively flat over the past nine weeks, and the near-term outlook calls for prices to remain steady over the next few weeks assuming the status quo in oil markets. However, with recent refinery problems in California driving up gasoline spot prices along the West Coast in the last couple of days, retail prices could increase in the West Coast in upcoming weeks, and depending on the speed of U.S. crude oil and product market rebalancing (as noted above), this pressure could spread eastward. Retail diesel fuel prices decreased by 1.4 cents per gallon to a national average of 128.6 cents per gallon as of June 10.
Below Average Propane Build
The May 2002 stock build, measuring 6.1 million barrels, fell short of the five-year average of 9.9 million barrels. Despite a less-than-average stock build, U.S. inventories of propane continued nearly 8.5 million barrels above year-earlier levels with inventories of 51.9 million barrels as of May 31, 2002, a level that remains above the average range for this time of year. Moreover, this level also marks the highest for this month since 1982. Regional gains were weak across all areas, as the apparent glut in inventories has not provided any incentive for a robust stock build this season. While East Coast inventories fell by more than 0.1 million barrels last month, Midwest and Gulf Coast inventories during this same period recorded less than average gains of 2.7 million barrels and 3.2 million barrels, respectively. But only two months into the traditional build season, U.S. inventories are about one-third replenished on average over the past five years, leaving more than enough time for the remaining two-thirds over the next four months.
Next Propane Inventory Release
Propane inventory data for June 30, 2002, will be published in the July 10, 2002 issue of “This Week In Petroleum.”
|
-1.7
2.3
