10 year chart of Gasoline Futures

While sitting in the bleachers at my son’s soccer match on Saturday afternoon (They won 5 to 2 and N. scored a goal) parents were talking about two things: college search efforts and the high price of gasoline. After listening to all the confusion and misconceptions regarding the pricing of gasoline I decided I should update my previous posting  entitled “Oil Supplies, Demand and the Keystone Pipeline.” 

This entry includes updated data from my January posting, some new data points and  comments regarding shifting market dynamics and relevant industry news that may have gone unnoticed by the public.

Relevant data from the EIA.org web site :

Domestic Production: In 01.01, domestic oil production was 5.9m bpd (barrels per day). In 01.09 production had fallen to 5.2m bpd.  The latest EIA data shows that US production has risen 11% from 01.09 to 5.8m bpd.

Oil rig data from Baker Hughes, an oilfield servicer who tracks industry trends, shows a 29% increase in the number of rigs in the last 3 years.

Petroleum Imports:  In 01.01, the U.S. imported 11.6m bpd. By 01.09 that amount posted a 13% increase to 13.2m bpd. The latest report EIA shows petroleum imports were running at a rate of 11.2m bpd, a 15 % reduction since President Obama took office.

Product Supplied: (Demand)

The combination of the economic slowdown and improved energy efficiency has energy demand at levels not seen since 1999. The latest product supplied figures show current usage is off about 17% from the 2008 high.

Petroleum Inventory Levels:      

Gasoline inventories are tracking on the high end of their 5 year average.





Petroleum Exports: In 01.01, the U.S. exported approximately 1m bpd of petroleum products. By 01.09 exports had increased 48% to 1.5n bpd. By 2012 exports had more than doubled and the latest 4 week average was 3.2m bpd. In 07.11 the US became a net exporter of gasoline fuels. HuffingtonPost reports that at the end of 2011 energy products were the leading export of the United States http://www.huffingtonpost.com/2011/12/31/united-states-gas-export_n_1177559.html

Taking a myopic United States centric view, one would think that US prices should be well contained. And it seems that many in the US ignore the rest of the world when it comes to energy pricing. Referring back to the US export chart, you can see that there is demand for “our” energy. 

With US production increasing and demand falling,  WTI prices are about 25% below the record highs set in the summer of 2008. Gasoline, on the other hand, is running about 15% below the summer of 08 prices.  What is the disconnect between the pricing of “oil” and gasoline?

 In the past West Texas WTI crude has been used as the world’s benchmark for oil prices and the prices of WTI and brent have closely tracked one another. but over the last few years logistical problems at the Cushing, Ok delivery point have crimped the accessibility to the oil to the marketplace and has limited the use of WTI as an accurate price indicator. This can be seen when viewing futures trading activity of the different contracts. In January ’11 10,681,994 Brent contracts trade on the ICE exchange and 17, 948,417 WTI contracts traded on the NYMEX platform. This January brent trading on the ICE increased by 7% to 11,208,911 while WTI trading fell by 30%, to 12,557,020. 

As you can see the price moves in gasoline are closely following brent oil.

A couple of other facts to bear in mind: Most exports of US petroleum products flow from oil facilities in the Gulf of Mexico where they end up in Mexico and Latin American countries like Ecuadoor (an OPEC member!)  

Because various East Coast refineries have been idled, much of the gasoline  needed on the Eastern Seaboard is imported from Europe.

More than 50% of US energy demand is met by domestic production.

Almost one half of what we do import comes from within the Western Hemisphere. Less than 20% comes from the Persian Gulf

Some other notable news items that you probably haven't heard in the media:

1. The US government sold leases for more than one million acres offshore Texas
2. The US and Mexico signed a treaty that makes 1.5 million acres of the US Continental shelf more accessible.
3. The US will offer 38 million acres for lease in an area that shows great  promise.

(source http://www.platts.com/BlogDetails/oilblog of February 24, 2012

As you can see, President Obama does have an "oil" agenda. The only thing we could do differently would be to nationalize the petroleum industry and prohibit oil companies from selling their product on the "free market'.    Hey that sounds like Socialism or something