Crude oil prices continued downward this past week. The following
figure shows actual domestic first purchase crude oil prices (what producers receive) and the
same prices adjusted for inflation to 1995 equivalent prices. (prices from EIA, deflater from CEC).
Crude oil prices announced this week are even lower. California's Kettleman Hill crude (34 API)
is $8.95,
West Texas Intermediate (WTI) crude (32.5 API) is $8.50. The drop in prices is driven by speculators
who are bidding prices down on the futures market, coupled with very low demand at U.S. refineries.
The futures prices drop. Spot market prices are set with respect to futures prices. And refineries
establish posted prices with respect to spot market prices. In a market where actual demand for crude
oil in the U.S. is low and inventories are high, there is nothing driving crude oil prices.
This dip in prices is temporary because the U.S. will not remain in a demand slump forever.
Currently, refineries are loaded with crude oil and product -- inventories that must be
accounted for at year-end for taxes and annual reporting. It is to the advantage of the oil
companies to try to bring those inventories down. However, Mother Nature is not cooperating.
Warm temperatures across the United States literally stopped the flow of heating oil (distillate)
from intermediate and refining storage tanks. To make matters worse, refiners had been building
unusually large inventories of distillate since last spring. Refiners will step up purchases
of crude oil for the new year, which should reverse the price of crude oil. But it will take an
act of nature - literally - to draw down the distillate inventories so refineries can operate normally going into
the spring.
Meanwhile, the consumers and the economy benefit by experiencing the lowest prices in years. In
fact, adjusted for inflation, current prices are well below those of 1978. But
the U.S. exploration and production program is temporarily on the skids.
Baker Hughes Inc. reports
U.S. operating rigs dropped to 669 this week - down from 1,014 rigs operating this time last
year. However, domestic crude oil production is down only 1% from last year. There is no
question that there will be some fall out as a result of the low crude oil prices. But this
industry is pretty lean and many will make it through.
COMPETITION in CALIFORNIA
The following graphs show the prices of crude oil, wholesale gasoline and retail gasoline in
California. The first figure shows prices from 1914 to 1921. The second chart shows prices
from 1990 to 1998.
In November 1921, one subject of the Report of the Federal Trade Commission was product price
fixing. The primary complaint seems to have originated from the price increase that occurred after
WWI, from late 1919 to 1921. Although Standard (now Chevron) and Shell, did not join the
Independent Petroleum Marketer's Association, it was reported that "the Los Angeles sales manager
of the Standard Oil Company was kept fully informed of the important price activities of the
association by a representative of a company belonging to the association, and this information was
promptly forwarded to the general sales manager of the Standard."
Similar complaints were heard in 1997 and 1998 in response to high gasoline prices in California
as compared to the rest of the country beginning in mid 1995. Not surprisingly, the oil companies
were once again accused of price fixing. Notice that in both cases, as the investigations took
shape, the prices came down. Hmmm.... To read the next installment
of the SPECIAL REPORT - Competition on the West Coast (or lack thereof)
click here.
Weekly Report
Imports of crude oil into
the U.S. decreased from 9.5 million bpd to
7.9 million bpd for the week, maintaining the four week average at 8.5 million bpd.
Refiners were able to pull down inventories from 341.8 to 336.2 million barrels.
Inputs to refineries decreased from 14.8 to
14.7 million bpd, or 93.2% of capacity. Overall, refineries operated at slightly lower rates,
which
will continue into the new year.
Gasoline inventories were the same at 205.7 million barrels, still within a normal range for this
time of year. However, refineries will have to either step up production or purchase imported
gasoline over the next 3 months to meet spring demand.
Distillate inventories increase 2.7 million barrels to a total of 148 million
and imports are still extremely low. Cold weather will cure this problem.
EIA U.S. Refining Data
Inputs and Imports are 4-week Avg
| Input/Output | Million BPD | Imports | Million BPD | Inventory | Million BBL |
Week | Nov 20 | Nov 27 | Nov 20 | Nov 27 | Nov 20 | Nov 27 |
Crude Oil | 14.01 | 14.7 | 8.598 | 8.542 | 341.8 | 336.2 |
Gasoline | 8.029 | 8.181 | 0.553 | 0.499 | 205.7 | 205.7 |
Distillate | 3.56 | 3.35 | 0.176 | 0.183 | 145.3 | 148.3 |
Resid | 0.747 | 0.711 | 0.280 | 0.256 | 39.8 | 39.0 |
World crude oil prices reported by EIA
as of November 27, 1998: Saudi Arabian Lt (34 API) - $11.63, Nigerian Bonny Light
(37 API) $10.70, UK Brent (38 API) $10.53, and Mexico Maya
(22 API)- $7.03.
Posted prices for crude oil as of December 3, 1998
were: Scurlock, West Texas Intermediate (WTI), $8.50; Louisiana Lt. Sweet Onshore $7.75,
Oklahoma Sweet $8.50; Alaska North Slope $9.44; Kern River (13 API) $6.75; Kettleman Hill (34 API)
$8.95; and Wilmington (17 API) $7.00
The price of ANS appears to be artificially high. There is some concern that the price of gasoline
in Alaska is too high. Part of the problem may be that the price of ANS
is higher than the price crudes to the refineries in the lower states and Alaska refineries
run ANS.
East Coast Gasoline and Heating Oil
East of the Rockies - Production was down in PADD II, and up slightly in
PADDs I and III. Inventories increased on the East Coast (PADD I) but decreased in
the Midwest and Gulf Coast areas (PADDs II and III). All changes reflect minor shifts in
refining and storage. Overall, the supply is about normal for December. Price decreases
are directly related to the fall in crude oil prices and stiff competition in the eastern
markets.
Distillate levels are still high, especially in PADD I where 3.4 million barrels were added
to already full storage tanks for a total of 74.5 million barrels. These inventory levels will
make it impossible for eastern refineries to make spring run gasoline. Instead, they may have to
depend on their Gulf Coast counterparts and imports to fill their tanks. Of couse, if some
really cold weather shows up, the problem will be alleviated.
Gasoline prices were lower last week, and may drop even further with the decrease in crude oil
prices. EIA reported gasoline prices per gallon
for Regular on November 27 were as follows: PAD I - $97,
PAD II - $.93, and PAD III - 0.92.
Diesel prices on November 27 were about the same:
PADDs I - $1.01, PADD II - $.98, and PADD III - $.98
FORECAST: Gasoline prices will follow the price of crude oil and will remain very reasonable
through Christmas.
The price of heating oil will remain low through the winter of 1998-99 and the level of
imports will remain almost nil through the season.
Rocky Mountain Gasoline and Diesel
Rocky Mountain - the price of regular gasoline decreased from $1.08
to $1.07 per gallon and the price of diesel dropped to $1.06 per gallon.
Rocky Mountain prices will continue to mirror changes in the price of crude oil.
West Coast Gasoline and Diesel Forecast
West Coast - Activity among the West Coast refineries is
positively boring. There is no real evidence of competition, but at least they are keeping
prices lower than they were a few months ago. Margins for the major refineries are still good
and the West Coast demand for gasoline is stronger than ever.
The Exxon-Mobil merger might
help foster more competition by creating another company on equal footing with Shell-Texaco,
Chevron, TOSCO-UNOCAL, and ARCO. The graph below shows the crude still capacity for refineries
in California. Paramount and Ultramar are separated out from the other small refiners because they
are the only other refineries capable of making significant amounts of gasoline that meets
California specifications.
On November 27 the average price of (reg-mid-premium)
gasoline in PAD V was still $1.18 per gallon.
The price of Regular in PAD V was the same at $1.13 per gallon. Reformulated gasoline costs
$1.15 per gallon.
The average price of diesel in PAD V remained at$1.09 and Californian's are still paying
$1.16 per gallon.
FORECAST: The price of gasoline and diesel should drop since the price of crude oil has
dropped almost 30% over the past month.
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
Subscribe to the NOESIS update
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