Released on January 13, 2010
(Next Release on January 21, 2010)

Monthly OPEC Surplus Oil Production Capacity Data Now Available

With the release of the January 2010 Short-Term Energy Outlook, the Energy Information Administration (EIA) extended its published monthly data series for surplus crude oil production capacity for members of the Organization of Petroleum Exporting Countries (OPEC) back to 1991 (see figure below). This is a frequently requested data series, because surplus production capacity is a key factor in understanding oil market trends and in forecasting world oil prices. Low and falling surplus production capacity generally characterizes a tight market and firming prices, while a high and rising level of surplus production capacity may signal a loose market balance and weakening prices.

As is often the case in preparing and understanding data, the devil is in the definitions. EIA defines surplus production capacity as the difference between current production and maximum available sustainable capacity, the latter defined as the volume of oil production that can be brought online within 30 days and sustained for at least 90 days. Thus, EIA’s concept of sustainable capacity excludes surge capacity – a quick increase in production that cannot be sustained under normal business practices because it might damage the oilfield, for example.

Furthermore, EIA’s definition of surplus capacity includes only that production capacity that is available to meet oil market needs. In some countries, such as Nigeria and Iraq, there has, at certain times, been a substantial amount of unused installed production capacity that was not available to come online because of security considerations or because limitations in pipeline access meant that there was no place for any additional oil production to go. EIA believes that it would be misleading to include such capacity in a measure of available surplus capacity.

Like most other analysts, EIA focuses only on crude oil in measuring surplus production capacity. As a practical matter, there is almost no surplus capacity for condensates, natural gas liquids, refinery processing gain, and other petroleum liquid streams. Because there are no OPEC or other quotas on these supply sources, there is little incentive for countries to voluntarily withhold supply available from these sources.

The primary incentive for countries to hold back crude oil production and create surplus production capacity is to support production and price targets. Such targets call for voluntary production restraints that leave some unused capacity that can be made available to oil markets, if desired. Normally, surplus capacity is concentrated in Persian Gulf OPEC countries. These countries currently hold about 4.7 million barrels per day (bbl/d) of surplus capacity, of which 3.8 million bbl/d is in Saudi Arabia. Saudi Arabia also has a stated policy of maintaining at least 1.5 to 2 million bbl/d of spare production capacity in order to maintain its influence over world oil markets, and to serve as a reserve for security reasons. In the past, some non-OPEC countries (e.g., Mexico, Norway, and Russia) pledged to withhold some of their oil production in support of the OPEC production targets, but the actual amounts withheld have been very limited and were of short duration.

The bottom line is that surplus capacity is a valuable oil market indicator, but that estimates of surplus capacity inevitably vary across analysts. These differences are due to the definitions and concepts they apply and differences in measurement of effective capacity and production levels for some countries in a global oil market that is not entirely transparent. EIA’s surplus capacity data reflect our best estimates given our knowledge and expertise.

U.S. Average Gasoline and Diesel Prices Continue Upward Movement
The U.S. average price for regular gasoline rose for the third week in a row, advancing nearly nine cents to settle at $2.75 per gallon, $0.97 higher than the average a year ago. Despite an increase of more than 16 cents over the past three weeks, the average remains $1.36 per gallon less than the all-time high price set on July 7, 2008. Prices rose by at least six cents in all regions of the country. The largest increases took place on the East Coast, in the Midwest, and on the Gulf Coast, where the averages each shot up nine cents to $2.75, $2.73, and $2.62, respectively. Prices in the Rocky Mountains and on the West Coast each increased by nearly seven cents, to $2.58 and $2.97, respectively. In California, the average rose six cents to $3.05 per gallon.

Diesel prices also increased sharply, moving up eight cents to $2.88 per gallon, $0.57 above the price a year ago. Prices rose in all regions of the country by at least six cents per gallon. On the East and Gulf Coasts, the averages shot up a dime to $2.92 and $2.85 per gallon, respectively, with the New England price surging by more than 13 cents to $3.07 per gallon. The averages in the Midwest and the Rocky Mountains each climbed about seven cents, settling at $2.84 and $2.81 per gallon, respectively. The smallest increase took place on the West Coast, where the price rose six cents to $2.97 per gallon. In California, the average went up seven cents to $3.03 per gallon.

Propane Inventories Continue to Nosedive
Propane stocks across the country continued to fall last week. Total U.S. inventories drew by 3.5 million barrels to 46.0 million barrels total. The Gulf Coast region led the draw with 1.7 million barrels, while the Midwest region drew 1.0 million barrels of inventory. The East Coast regional stocks fell by 0.7 million barrels and the Rocky Mountain/West Coast region drew about 0.1 million barrels. Propylene non-fuel use inventories increased their share of total propane/propylene stocks from 6.5 percent to 7.6 percent.

Residential Heating Prices Move Higher
Residential heating oil prices increased during the week ending January 11, 2010. The average residential heating oil price gained 10.5 cents per gallon to reach 298.5 cents per gallon, which was 54.6 cents per gallon higher than the same time last year. Wholesale heating oil prices rose 6.9 cents per gallon to reach 229.1 cents per gallon, 69.6 cents per gallon higher than at this time last year.

The average residential propane price jumped 12.7 cents per gallon to reach 266.1 cents per gallon. This was an increase of 35.5 cents per gallon compared to the same period last year. Wholesale propane prices rose 9.6 cents per gallon to reach 156.5 cents per gallon. This was an increase of 65.2 cents per gallon when compared to the January 12, 2009 price of 91.3 cents per gallon.

Text from the previous editions of “This Week In Petroleum” is now accessible through a link at the top right-hand corner of this page