WASHINGTON (Dow Jones)--Summer may be six months away but oil traders are already fretting about whether gasoline supplies will stretch to meet peak demand when U.S. motorists hit the road for their annual holidays.
Concerns that a tight supply-demand balance will get much tighter in 2006 after refiners comply with stricter federal environmental regulations have pushed the entire energy complex higher this week.
New York Mercantile Exchange gasoline futures for January delivery were 6.6% higher at $1.6524 a gallon compared to last Friday while crude oil futures for February delivery were up 3.2% at $60.32 a barrel.
Gasoline led the oil complex to rally Thursday after government oil data revealed that U.S. gasoline inventories stand some 13% below year-ago levels and well below their five-year average for this time of year.
"We are still convinced that the U.S. gasoline market is shaping up for a period of some considerable strength," said analysts Barclay's Capital in a research note.
"Inventories are falling at a time of year when they should be rising (and)...demand is still moving forward firmly," the analysts said.
A widely-circulated report by PIRA Energy Group, echoing similar concerns expressed by other industry consultants in recent weeks, sparked panic buying this week in quiet holiday week trading.
PIRA said "relatively high prices" would be required to balance gasoline supply and demand in 2006 as refiners struggle to meet more restrictive low-sulfur gasoline requirements.
The New York-based consultancy also said a voluntary phaseout of the use of additive methyl tertiary butyl ether (MTBE) and the mandatory use of ethanol in gasoline production will also cut into both domestic and imported supplies.
Some refiners, such as Valero Energy Corp. (VLO) are keen to eliminate use of MTBE, which has been used to reduce tailpipe emissions but has also been found to contaminate drinking water, after failing to win liability protection from Congress.
Mark Routt, a senior analyst at Boston-based Energy Security Analysis Inc., agreed that pump prices will inevitably rise and possibly surpass 2005's all-time highs above $3 a gallon, but he expects refiners will be able to meet demand.
Average U.S. retail gasoline prices on a national basis fell to $2.197 a gallon Monday, well below the August peak, according to the federal Energy Information Administration.
"Physically we have no problems," Routt said. "Europe continues to be flooded with gasoline and blending components and we will continue to import from them. As long as refiners are making 65 and 70% (gasoline) yields - which are unheard of - I do not see any problem at all. Price is another issue," he said.
But Joanne Shore, a downstream expert in the EIA, the statistical arm of the Department of Energy, said it is premature to predict pandemonium at the pumps.
Shore said a widescale MTBE phaseout - which she considers poses the biggest threat to gasoline supplies - is not inevitable, especially if the necessary transportation and distribution infrastructure to replace MTBE with ethanol is not in place.
"Before everybody jumps off a cliff on this thing, we have to take a deep breath,' Shore said. "There is no doubt that this is complicated, there is no doubt that there is potential for some problems but there is still some wiggle room."
"The oil industy is certainly well aware of the issues and they certainly want to be able to supply the market," she said.
"Things may be complicated enough so that some of the companies and some of the areas may back off trying to change really quickly until the supply situation calms down a bit," Shore added. |
