To thread - Just to feel like part of the gloom and doom -
(As long as I have no margin calls, I'll hold on.
Oil will come back. I would rather make real money later
than lose real money now IMHO. :-(
Noesis June 11, 98
NEWS FLASH: The over production of crude oil is a world problem, not just an
OPEC problem. For those interested, check out the the EIA international
data(select Reports, then Petroleum). At 75.64 million barrels per day (MMbd),
production is 2 million higher than first quarter production in 1997. OPEC
produces 30.79 MMbd, or 40% of the world total, which means their share of
the reduction should be only 800,000 barrels per day. This crude oil glut is a
problem that probably will not be solved by collective control unless there is
an unprecedented world wide agreement to which everyone adheres.
Instead, production will drop as a matter of full tanks, reduced demand, and
low prices. As long as production capacity exceeds demand, the price of oil will
continue to drop as prducers compete to sell their crude oil to the limited
number of buyers. Right now, the problem is aggrevated by the amount of
crude oil currently in storage in the U.S. There simply is not any more tank
space to store more crude oil so refiners cannot purchase crude oil even at rock
bottom prices. The U.S. uses 20% of the world supply of crude oil. When the
U.S. cuts back on purchases, as it must right now, the glut of available oil on
the world market will swell, which is what appears to be happening. This
problem could get worse because demand in the U.S. for refined products
seems to be falling below industry and EIA forecasts. As a result, U.S. product
inventories are also full, which puts pressure on refineries to reduce input of
crude oil to the refineries.
Over the next year some producers will determine that they cannot continue to
invest in exploration and production and will stop or delay production.
Eventually, will drop just below demand. At that point, the price of crude oil
will increase. This cycle takes months, sometimes years. Right now, there is
very little indication that any major producers have altered their production
plans for 1998. Look to their 1999-2000 plans to see if the situation will change.
Weekly Forecast, June 8 - Refiners drew down crude oil inventories by 4.3
million barrels to a total of 347.1, down from 351.4 million. Inputs to crude stills
increased to 15.6 million barrels per day, putting utilization at 99.5%. Although
crude oil inventories were drawn down, product inventories increased across
the board, so the draw down should not be viewed as an indication of
increased demand. Total gasoline stocks increased by 3 million barrels and
total distillate stocks increased by 5.1 million barrels. It appears that refiners are
simply maximizing the use of all storage. By filling product tanks to capacity,
they can make room in crude oil tanks for more low priced crude. This approach
is risky because full product tanks can limit refining flexibility. Slow demand for
any one product can force a refiner to cut back on refinery throughput, thus
reducing production of all products. As a result, shortages of products in
demand may occur.
Several readers have asked when the price of crude oil will turn around. My
answer is that I do not have a crystal ball. The price will turn around when
world wide production decreases to a level at, or just below, world demand and
when U.S. refiners are in a position of needing crude oil.
The first trigger, however, will probably occur after January 1999 when new
figures for world crude oil reserves are released. Reserves are calculated at the
price of crude, i.e., the amount of crude oil that can be produced economically
at the current price of crude oil. If the price remains around $15 per barrel for
the world marker crude oil (Brent), the total reported crude oil reserves will drop
significantly. Speculators will probably take that as a sign that the world is
running out of crude oil and will run the price up. The run up will probably not
last long since real buyers of crude oil (the refiners) have a better
understanding of how much oil is really out there -- UNLESS production drops
drastically between now and January 1, which could conceivably happen.
It is more likely, however, that production will drop steadily from January 1999
through the year 2000 as major oil companies cut back on exploration and
production projects. Eventually, the market will tighten, and the price will go
up. Ideally, by reading the NOESIS forecasts and tips, you will learn how to
evaluate the data and will be able to develop your own long term forecast.
For new graphs and data on current crude oil prices, check the NEW links on
the NOESIS links page.
East Coast Gasoline and Heating Oil
East Coast - Gasoline stocks increased in all PADS, guaranteeing continued
low prices at the pump. The average price of regular gasoline in PAD 1 was
$1.03, in PAD 2 was $1.07, and in PAD 3 was $1.00. A NOESIS reader reported
the following prices in Annandale, Virginia:
(Prices for Reg, Mid, Premium)
AMOCO - 1.06, 1.16, 1.25
Shell - 1.05, 1.17, 1.19
Citgo - 1.05, 1.12, 1.25
Mobil - 1.05, 1.07 (corrected from Monday's error reporting $1.05), 1.17
Texaco- 1.04, 1.14, 1.22
EXXON - 1.06, 1.16, 1.22
HESS - .98, 1.09, 1.17
Crown - .99, 1.10, 1.13
Heating oil inventory levels on the East Coast (PAD 1) increased from 52.7 to
55.9 million barrels. Inventories remained the same in the Gulf, and increased by
.9 million in the Midwest. The price of diesel is between $1.03 and $1.06 east of
the Rockies. The price of diesel in PAD IV (Rocky Mountain area) is $1.11.
Prices of gasoline and diesel will remain low throughout the summer. The
price of heating oil should be very low through the winter of 1998-99.
West Coast Gasoline and Diesel Forecast
West Coast - major California refineries are operating at about 94% utilization
based on California Energy Commission data.
Gasoline stocks increased from 29.3 to 30.5 million barrels in PAD 5, reflecting
the increased throughput at west coast refineries. The average price of
gasoline in PAD 5 dropped a penny to $1.20, but Californians continue to pay
an average of $1.30 per gallon.
Diesel stock levels increased by 500 thousand barrels to a total of 11.9 million
barrels. The average price of diesel dropped in Pad 5 from $1.12 to $1.11, and
Californian's are paying $1.18 per gallon.
West Coast gasoline and diesel prices are expected to continue a slow rise
through the summer because refiners are effectively maintaining the supply
to match demand.
Imports
Imports - Gasoline imports remain about 600 thousand bpd; a clear indication
that imported gasoline is less expensive than making gasoline in U.S. refineries.
Imports of other products remain very low. |
