Noesis: Crude Oil, Gasoline and Diesel Stock and Price Forecast



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March 14, 1999 FOR THE CURRENT INFO ON RIG COUNT CHECK OUT THE BAKER HUGHES SITE

Crude Oil Price Forecast EIA data reviewed last week revealed a drop in crude oil inventories over a 7 day period that was difficult to explain when considering the import and crude still feed rates. Some readers suggested the problem might be explained by the EIA announcement that it had estimated demand and production incorrectly in its forecasts. Actually, EIA's problems in their own forecasts should have no bearing on the actual data reflected in their Weekly Petroleum Status Report (WPSR), which is the data used for this forecast page. EIA refinery data is reported by refiners. There are two possible sources of errors -- the companies reporting the data and the people at the EIA who enter the data into the computers. It is possible that the production estimate, which is provided by EIA, could be off. However, it is highly unlikely that it could suddenly become as far off as it appeared to be within just 7 days unless some companies in the industry took special steps to suddenly limit the level of production. It is that type of production manipulation that was suggested in the March 8 forecast. Reader response was heavy. You can read some of those responses on the READER FEEDBACK pages. As it turns out, the mysterious loss of inventory, from 334.7 to 331.5 million barrels, was recovered in the data this past week when crude oil inventories increased to 334.4 million barrels. At the same time, inputs to crude stills increased from 14.42 to 14.49 million bpd and imports decreased from 8.95 to 8.65 million bpd. It is clear that the data was either reported in error or entered in error last week. It is possible that the data was reported in error on purpose to skew the inventory numbers, hoping speculators would act on the change. No matter what the cause, it worked. The apparent inventory draw down, coupled with rumors about decreases in OPEC production spurred crude oil prices to recent highs and, so far, the prices have been maintained. The reality is that futures prices are key to sustaining the price of crude oil in the current market. That is the case because the strong demand for crude oil currently only exists in the futures market. As long as everyone holds on to the belief that the crude oil supply is being controlled and reduced, futures will remain high and actual crude oil trades will be priced against spot oil prices, which reflect the price of futures. The problem is that sooner or later, those speculators who own crude oil futures must sell them, because speculators rarely take delivery on the crude oil. Will demand for those futures contracts last?

Total world production seems to be headed in the wrong direction to correct the over supply situation. If OPEC reduces production by 2 million bpd, the supply will be at the right level. However, full inventories around the world will buffer the effect of the cut back and it could take up to a year before the effects of a 2 million bpd are realized. In addition, OPEC has not demonstrated the ability to reduce its production.

Continuing with the analysis of EIA data, the best approach at this point is to look at the data over the past two weeks. The result is that over the past two weeks, inputs to refineries dropped by 5 thousand barrels per day. Inventories decreased by 300 thousand barrels and imports were decreased by 127 thousand bpd. On balance, the system has been operating at about the same level as it was in February. Refineries are operating at 91.1 percent utilization. Therefore, although a drastic price decrease projected for early March has been diverted, the forecast remains about the same -- around $12/bbl --, with the a price decrease before spring still a distinct possibility. There is still the chance that reduced production in the U.S. may uphold the demand for imported crude oil, which will, in turn, help sustain prices at current levels.

An interesting twist is occurring on the U.S. West Coast where some refineries are increasing utilization rates to cover losses from the TOSCO refinery and the extended shut down of the Exxon refinery. The increased rates caused the refiners to post higher prices for certain crudes, so there is a temporary increase in crude prices occurring this week in California. These crude oil prices should have no effect on the overall crude oil market, since all of the California crude oil is refined in California refineries and no imports (there aren't any to speak of) will be backed out. U.S. production of gasoline increased from 7.86 to 7.93 million bpd, while stocks of gasoline dipped from 177.3 to 176.5 million barrels. The decrease in inventory was a result of a small decrease in imports. Demand for gasoline remains steady. Refiners reduced the rate of distillate production from 3.30 to 1.31 million bpd and reduced the levle of imports. As a result, they drew down inventories from 140.2 to 136.4 million barrels. The big cold front that moved through the Eastern States this past week may have created additional demand to pull down inventories even more, which will help refiners by giving them more working inventory space going into the Spring.

EIA U.S. Refining Data
Inputs and Imports are 4-week Avg
	Input/Output	Million BPD	Imports	Million BPD	Inventory	Million BBL
Week	Feb 26	Mar 5	Feb 26	Mar 5	Feb 26	Mar 5
Crude Oil	14.5	14.5	8.6	8.6	331.5	334.4
Gasoline	7.9	7.9	0.487	0.484	227.4	226.7
Distillate	3.3	3.1	0.293	0.265	140.2	136.4
Resid	0.7	0.7	0.253	0.303	41.0	41.1

W orld crude oil prices reported by EIA as of March 5, 1999: Saudi Arabian Lt (34 API) - $10.18, Nigerian Bonny Light (37 API) - $10.55, Indonesia Minas (34 API) $10.55, UK Brent (38 API) - $11.10, Venezuela Tia Juana Light (31) $10.40, Mexico Maya (22 API) - $8.52, Mexico isthmus (33) $10.32, China, Daqing (33) $10.30, and Russia Urals (32 API) $10.40.

Posted prices for crude oil as of March 11, 1999 were: Scurlock, West Texas Intermediate (WTI) $11.75; Louisiana Lt. Sweet Onshore $10.50, Oklahoma Sweet $11.75.

Refiner posted prices on March 12 were: WTI (36 API) $13.75, Louisiana Lt. Sweet Onshore $13.00.

West Coast Refinery posted prices as of March 10: Kern River (13 API) $8.75; Alaska North Slope (28 API) $5.03 (est based on Feb 26 O&G Journal + posted increases); Kettleman Hill (34 API) $11.70 and Wilmington (17 API) $8.60.

East Coast Gasoline and Heating Oil

East of the Rockies - Overall, the refining rates in PADDs I, II and III were down slightly from last week. Production of all products was also lower. Inventories of crude oil increased in these three regions by 4.5 million. Gasoline inventories remained about the same.

Distillate inventories were drawn down in PADDs I, II and III, but still remain very high for this time of year.

Despite higher crude oil prices, gasoline prices on March 8, 1999 were about the same: PADD I - $.89, PADD II - $.89, and $.87 in PADD III. If prices of crude oil remain higher and competition keeps gasoline prices this low, refiner margins will be extremely tight in the East.

Diesel prices on March 8, 1999 were up a little: PADD I - $.97, PADD II - $.94, and PADD III - $.93

FORECAST: Gasoline prices should increase with the price of crude oil, but may be forced back in Spring competition for market share in the Eastern and Gulf Coast markets.

Rocky Mountain Gasoline and Diesel

Rocky Mountain - Gasoline inventories remain high for this region at 7.9 million barrels, plus refineries increased gasoline production again this week. So there should be no shortage going into the spring months. Distillate inventories are also higher than normal, especially for this time of year.

The price of regular gasoline remained at $.96 per gallon and the price of diesel increased to about $1.00 per gallon.

Rocky Mountain prices seem to be fairly stable, but diesel prices may drop if refiners have to lower tank levels over the next few weeks. If crude oil prices remain higher, refiners will make up the difference by posting higher diesel prices despite the need to put more of it on the market. As long as all of the refiners increase their prices (as a result of higher crude oil prices), the increase will probably hold. This will be a good test of competition in PADD IV.

West Coast Gasoline and Diesel Forecast

West Coast - As mentioned earlier in this report, PADD V refineries are operating at a higher utilization rate to make up for lost production at Exxon and TOSCO. However, there is no shortage. Total input of crude oil increased from 2.37 to 2.55 million bpd since the TOSCO refinery shut down. Output of gasoline increased and output of diesel held constant. Inventories of gasoline are running low because refiners have been bringing the inventory levels down since late December. As a result, supplies are limited at the distributor level, so prices will continue to climb.

Although inventories of diesel are not low, prices of diesel will probably increase with gasoline since refiners normally reason that they could make the diesel into gasoline instead of selling it at a discount.

By March 8 the average price of (reg-mid-premium) gasoline in PADD V had increased 4 cents to $1.16 per gallon. The price of Regular was up 4 cents at $1.12 per gallon. Some retail outlets have increased their prices as much as 12 cents per gallon within the past week.

The average price of diesel in PADD V jumped up from 1.03 to $1.07 and Californian's are now paying $1.15 per gallon.

FORECAST: With no prospect of competition to drive prices down, gasoline and diesel prices will soar for awhile, until the consumers become enraged and begin to protest. Inventories are low and even with higher refining rates, Spring demand may keep the inventories at their low levels. The market continues to be well managed to sustain increased pricing.

For a good graph of gasoline and diesel prices since 1997, take a look at the EIA graph.

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Many readers write in and ask for more data or specific information. You are encouraged to explore the NOESIS Index Page and the Links Page. The links listed have been especially selected to get you to data and information which will supplement the information you find on the NOESIS site. They are all great sites! For EIA data used in these forecasts, select the Energy Information Administration link. Once there, select Petroleum. Then select "Weekly Petroleum Status Report" The TEXT version gives you basic data. Or scroll down and select pdf, text or html files for tables and graphs. There is a wealth of information on the EIA site. With the analytical tools you've picked up by reading the NOESIS reports, you should be able to use most of the data! As always, if you have questions, send email. contact George Clemen at NOESIS

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