|
Released on July 3, 2002
(Next Release on July 10, 2002)
Numbers to Believe In
With revelations that important data released by major corporations, including Enron, WorldCom, and Xerox, were not accurate, it is an excellent time to contrast those releases with the key information oil markets depend on, particularly weekly data released by the American Petroleum Institute (API) and the Energy Information Administration (EIA). API and EIA publish oil supply and demand data, as well as inventory data, on a weekly and monthly basis. EIA’s releases rely on different survey forms, so while each successive survey updates numbers previously released, they aren’t exactly “revisions” as they are collecting information on different forms. Yet, the data are very similar for both the weekly and monthly data. On key variables such as inventories and demand for major petroleum products, it is rare for the monthly data to be more than 5 percent different from the weekly data. And since January 2001, the monthly data for total petroleum inventories (crude and refined products together) have never differed by more than 1.5 percent from the weekly data. What this means is that oil companies, traders, analysts, and others can rely upon the weekly data in evaluating current market conditions.
So what are the numbers telling us?
For crude oil, it seems that supplies are sufficient for now, largely because refiners are running less crude oil through their refineries than they typically would at this time of year. Last week, even with crude oil inputs to refineries at their highest level since the week ending September 7, 2001, the four-week average remains over 200,000 barrels per day less than last year. If crude oil inputs to refineries remain at or above the levels seen last week, crude oil inventories could begin to fall, putting some increased pressure on crude oil prices. Of course, should crude oil imports increase, that could offset any increase in crude oil inputs to refineries. However, the prospect for this is dim, as OPEC recently agreed to continue its current set of production cuts, which have constrained crude oil imports to the United States. In addition, Iraq’s oil exports dropped sharply during the second quarter of 2002 due to a self-imposed embargo and increased trader reluctance to lift Iraqi barrels in the face of an ongoing pricing dispute between the United Nations and Iraq. Failing a quick resolution on this issue, Iraqi oil exports may continue at depressed levels for some time. Since the beginning of this year, crude oil imports have averaged about 8.8 million barrels per day, or almost 600,000 barrels per day less than was averaged over the same period last year. While this reduced level of imports has not significantly impacted available supplies yet, if these levels remain the same while demand increases, the market would quickly tighten. The expectation that this may occur could be why the price for West Texas Intermediate crude has remained above $25 per barrel for most of the time since mid-March.
The demand numbers tell, in some way, an even more remarkable story. Over the last four weeks, total petroleum demand has averaged 0.5 percent more than for the same period last year, the largest year-over-year growth rate since the four weeks ending May 25, 2001. While this points to demand beginning to increase, the fact that a 0.5 percent increase is seen as significant shows how weak petroleum demand has been lately, particularly since the attacks on September 11. But what really matters here is an accurate assessment of the principal drivers of that weakness. As has been noted several times in earlier editions of “This Week In Petroleum”, it is our view that most of the “weakness” shown in comparisons with last year is attributable to one-time factors that have either faded away or whose impact will be reduced in the near-term. So, while a 0.5 percent growth rate may not be large, it is a clear indication of stronger growth ahead.
Interestingly, while total petroleum demand has been relatively weak recently, gasoline demand has defied this trend, growing at a normal rate (or even higher) over this period. Since October 2001, gasoline demand has averaged a year-over-year growth rate of 2.0 percent. Yet gasoline prices have not soared this summer as they have the previous two summers. Why? Because, while gasoline demand has been strong, so has gasoline supply. Gasoline production, particularly over the latter part of the past winter, was high, as refiners reduced the amount of jet fuel being produced since September 11, reflecting the reduction in jet fuel demand. Also, gasoline imports have been pouring into this country, largely reflecting decreased demand in other countries, particularly Europe, which has freed up their gasoline to be exported to the largest gasoline market in the world, the United States. Prior to this year, total gasoline imports (including gasoline blending components) have never averaged more than 1 million barrels per day in any week. However, this has now happened four times, all within the last 10 weeks! Without these historically large levels of imports, gasoline prices likely would have risen significantly by now. Will these imports continue? Time will tell. But clearly gasoline demand has not been weak and is not likely to become weak over the rest of the season, so if imports do fall, inventories will need to be drawn down, which would likely cause retail gasoline prices to rise later this summer. If you want to anticipate gasoline prices this summer, then watch our weekly numbers. They give an accurate picture of the market and can be trusted.
U.S. Retail Gasoline Price Moves Up 0.8 Cent Ahead of the Holiday
The U.S. average retail price for regular gasoline rose 0.8 cent last week, ending at 139.2 cents per gallon as of July 1. This price is 8.2 cents per gallon lower than last year. Price changes were mixed throughout the country, with the largest increase occurring in the Midwest, where prices rose 2.7 cents to end at 139.9 cents per gallon. Price decreases were seen on the East Coast and the West Coast, with the largest drop occurring in New England. Prices have remained relatively flat thus far this summer, although prices have been rising slightly over the last three weeks. Prices could continue to rise over the next few weeks if crude oil prices continue to rise or if there is an increase in gasoline demand and gasoline inventories are not able to keep up. Retail diesel fuel prices increased by 0.8 cent per gallon to a national average of 128.9 cents per gallon as of July 1.
|
0.8
-8.2
0.0