Seems we are burning plenty of gas on the way the Home Depot.
Energy Matters: 'Empty' US Gasoline Tanks Help OPEC
A Dow Jones Newswire Column
By David Bird
NEW YORK, Apr 4 (Dow Jones) - That loud noise rising over the din of OPEC pledges to stick to new output quotas is the alarm bell sounding in the U.S. gasoline market. In what could surpass California's rolling blackouts as the biggest energy concern for the world's largest energy consumer, the U.S. gasoline outlook for consumers is bleak ahead of the summer driving season, with the inventory gauge nearly pointing to "E" for empty.
Printer-friendly version E-mail to colleagues
Retail gasoline prices rose this week for the first time since mid February and are approaching the record-high levels set a year ago.
Gasoline inventories have never been lower at the start of the second quarter, an Energy Matters analysis of just-released U.S. data show, as record first-quarter gasoline demand overcame record imports and outputs in the period to keep stocks tight.
Last year, weak gasoline demand due to high prices led to the first decline in U.S. oil demand since 1991.
A host of U.S. demand data, led by gasoline, suggests the Organization of Petroleum Exporting Countries may get a reprieve from further cuts to support prices.
An Energy Matters review of preliminary Energy Information Administration figures shows U.S. first-quarter oil demand was the highest since 1979, averaging 19.8 million barrels a day, a 4.4% jump from a year ago.
Lowest-Ever US Stocks At End Of First Quarter
Total U.S. petroleum stocks ended the first quarter at their lowest level since 1985. The first-quarter drawdown in inventories was the smallest since a stockbuild was recorded in the 1998 first quarter. Crude oil imports set a record for the first quarter, at more than 9 million b/d, up nearly 11% from a year ago.
Crude stocks, at 303 million barrels, are up from a year ago, but well below the five-year average of 318 million barrels.
Crude oil input to refineries set a first-quarter record of 14.8 million b/d, and dropped by less than 300,000 b/d from the fourth quarter. That compares with industry estimates of a first-quarter decline, due to maintenance, of up to 800,000 b/d. That suggests some refiners avoided shutdowns due to strong margins, a situation that could lead to operating problems later in the year.
First-quarter gasoline demand set a record at 8.2 million b/d, while output and imports also hit their highest-ever levels for the quarter. Based on EIA demand projections for the second quarter, gasoline stocks cover just over 22 days of supply compared with 24 days a year ago.
Gasoline stocks, at the lowest-ever end-March level of 193 million barrels, are 5.5% under a year ago, and 10% below the five-year average. Gasoline stocks fell in the first quarter for the first time since 1995.
Demand for distillate fuel, comprising home-heating oil and diesel fuel, registered its highest first-quarter level since 1979, at 4.1 million b/d. Distillate output set a record for the quarter and imports were at their highest level since 1973.
Despite distillate stocks standing at 7.7% over the year-ago level, they remain 9% below the five-year average. Distillate stocks saw the smallest first-quarter decline since 1998, with the same pattern true for both high- and low-sulfur grades.
Concerns over thin gasoline inventories are likely to underpin oil prices in coming weeks. We forecast the price of OPEC's reference basket of crudes will hover in the present range of $22-$25 up to the group's next meeting on June 5 in Vienna.
OPEC Basket Seen Supported In $22-$25 Range
That trading pattern could confound OPEC, which has set a $25 target for the basket, within a trading range of $22 to $28. Ministers will adjust output by 500,000 barrels a day to keep prices within the range. But how OPEC should adjust production to address a price below $25 heading into the strong demand second-half of the year will stir intense debate. OPEC leader Saudi Arabia, the world's biggest oil producer and exporter, says the group will strongly defend the $25 target, but doesn't want to prejudge the moves to be made in June.
A price of $25 for the OPEC basket translates to near $29 for U.S. benchmark West Texas Intermediate crude, now trading just over $26. The differential between WTI and the OPEC basket averaged $4.28 in the first quarter, but in March, it dipped to $3.63. Ironically, despite six changes in output quotas since January 2000, the first-quarter average price for front-month Nymex light, sweet crude oil futures couldn't have been steadier, holding precisely at the year-ago level of $28.73. Because of the varying differential, the OPEC basket price slipped to around $24.36 in the 2001 first quarter from $26.11 a year ago.
Saudi Oil Minister Ali Naimi says OPEC will be closely watching the U.S. economy, which, on the brink of recession, doesn't need any further bad news on energy prices.
While no one is predicting a return to the gasoline rationing seen 20 years ago, some regional disruptions aren't ruled out. Regulations have been eased in the Midwest to lessen potential problems, but there is also less refining capacity in use in that area this year.
The situation of a tight products market keeping crude prices firm puts OPEC in somewhat familiar territory.
The group is again likely to become a lightning rod for criticism as the root cause of high prices, even if local operating problems are the issue.
In a quirky case, a gasoline retailer from Alabama won a U.S. District Court ruling that OPEC conspired to restrain trade by cutting output quotas. OPEC never responded to the charges.
Senior U.S. District Court Judge Charles Weiner finds that any sovereignty claims that oil exporting countries may try to make don't hold water because their actions were commercial decisions.
On paper, OPEC and "co-conspirators" Mexico, Norway, Russia and Oman are banned for a year from "entering any agreements among themselves or with third parties to raise, lower, or otherwise determine volumes of production and export of crude oil...or enforcing such agreement."
In practice, the document has even less weight than OPEC's quota accord, which may fray further in coming weeks if member countries sense a chance to sell more oil at prices above the low end of the target range.
On the heels of the ruling, U.S. legislators again have introduced a bill authorizing the government to take action against OPEC for restraining supplies.
But OPEC may find comfort to allow more oil into the market - without threats of legal action - and before the gasoline alarm becomes deafening.
Copyright (c) 2001 , Dow Jones & Company Inc |
