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 

IEA Oil Release News Reports

Brent Weekly

RBOV Weekly

WTI Weekly

Press releases IEA makes 60 million barrels of oil available to market to offset Libyan disruption

IEA collective action – June 23, 2011 Frequently asked questions How many times has the IEA undertaken such a “collective action”? When was the last time? How exactly will stocks be made available to the market in each of your member countries? What mechanism is used? How much time will it take for these stocks to become available? How much oil will each country release? Will each country release the same proportional amount, or will some countries do more? How is that decision made? THas the IEA consulted with OPEC or Saudi Arabia on this decision? Would this IEA action not discourage Saudi Arabia and other willing OPEC members from increasing oil production? I thought the IEA only does this for supply disruptions in excess of 7%. The 1.5 million-barrels-a-day disruption from Libya doesn’t seem all that much, given that global demand is around 88 mb/d, so why go to all the trouble? If the disruption from Libya is 1.5 million barrels per day, why are the IEA member countries releasing 2 million barrels per day? Libyan supplies have been off the market since February. Why are you only doing this now? Are IEA countries not putting at risk their capacity to react to more serious oil disruptions that may happen in the coming months considering geopolitical uncertainties in MENA countries?No; Several analysts say this is only likely to have a short-term effect on the market, and that prices will be higher in a month’s time. What’s your response?  Will you extend this by 30 days? How will you decide? Isn’t the IEA effectively doing this to counter high prices – and in that sense isn’t this fundamentally different from a traditional release in response to a supply disruption? Doesn’t this therefore set a bad precedent, by making the IEA a market manipulator? API Head: SPR Release Avoids Question Of Domestic Supply -CNBC U.S., allies to release 60 million barrels from oil reserves UPDATE 2-Bids for 30 mln barrels of SPR oil due by June 29

03.10.11 Review

Economic Reports

China : Merchandise Trade Balance
level Prior $6.45 B Est $4.5 B Act $-7.3 B
Imports were up 19.4% while exports rose 2.4%. 5th straight month that imports grew more than exports. (The Chinese New Year Holiday may have affected exports more than imports.)


United States : International Trade

Trade Balance Level Prior $-40.6 B Revised $-40.3 B Range $-42.2 B to $-39.7 B Act $-46.3 B



Weekly Jobless Claims  (Click to view report)

New Claims - Level Prior 368 K Revised 371 K Est 385 K Range 370 K to 400 K Act 397 K
4-week Moving Average - Level Prior 388.50 K Revised 389.25 K Act 392.25 K

EIA Natural Gas Report (Click to view EIA Report)


Weekly Change -85 bcf -71 bcf
Analysts were looking for a 80bcf draw

Other News Items

 USDA International Weather Summary
North America
Of particular concern was winter wheat on the central and southern High Plains, which—in addition to the February temperature swings—has been adversely affected by drought. In contrast, snow continued to accumulate across the northern Plains and upper Midwest, increasing the likelihood of spring flooding

South America
In Brazil, weather conditions remained generally favorable for soybeans and other summer row crops, as well as coffee, sugarcane, and citrus.

Russia
Near- to below-normal precipitation was observed in most primary winter crop areas, although wetter-than-normal weather (mostly snow) prevailed in western portions of Ukraine and Belarus.

India
February warmth in India aided the development of wheat and rapeseed, previously slowed by cold conditions. Late-month showers provided favorable
moisture for winter crops entering reproduction.

China
Light rainfall late in February eased short-term dryness across winter crop areas of China and provided beneficial moisture for wheat and rapeseed breaking dormancy

Australia
In February, occasional showers throughout most of southern Queensland and northern New South Wales maintained abundant moisture supplies for reproductive summer crops.

South Africa
In February, drier-than-normal weather reduced moisture levels for filling corn in eastern sections of the corn belt. Drier conditions also prevailed in sugarcane areas of KwaZulu-Natal, but scattered showers were overall beneficial for summer crops in western sections of the corn belt.

USDA WASDE Report

La Niña update

Platts press release on OPEC Feb Production Increase

Comex Silver Inventories up 500,000

New Orders - M/M	P=-2.5 %	R=-0.4 %	E=3.0 %	CR+2.0 % to 6.0 %	A=2.7 %
New Orders - Yr/Yr	6.9 %	9.3 %			7.0 %
Ex-trans - M/M	0.5 %	3.0 %			-3.6 %
Ex-trans - Yr/Yr	11.5 %	14.3 %			10.9 %

New Orders - M/M 

P=-2.5 %

R=-0.4 %

E=3.0 %

CR+2.0 % to 6.0 %

A=2.7 %

New Orders - Yr/Yr 

6.9 %

9.3 %

7.0 %

Ex-trans - M/M

0.5 %

3.0 %

-3.6 %

Ex-trans - Yr/Yr

11.5 %

14.3 %

10.9 %

 The Durable Goods number was supported by new transportation orders.It must be noted that the results from the previous month were revised sharply upward. All in all, the trend is still rising slowly. 

New Claims - Leve	P=410 K	R=413 K	E=405 K	ER=375 K to 415 K	A=391 K
4-week Moving Average - Level	417.75 K	418.5 K			402.0 K

New Claims - Leve                  

P=410 K

R=413 K

E=405 K

ER=375 K to 415 K

A=391 K

4-week Moving Average - Level

417.75 K

418.5 K

402.0 K

 The jobs picture is beginning to gain some traction    

New Home Sales - Level - SAAR

P=329 K

R=325 K

C=310 K

CR+280 K to 340 K

A=284 K

New Home Sales - Level - SAAR 

P=329 K

R=325 K

C=310 K

CR+280 K to 340 K

A=284 K

 New Home sales are struggling under the weight of foreclosed homes.       

Click to view Natural Gas Storage Report

Link to Weekly Supplies Report

Link to this Week In Petroleum

       Energy futures led the other markets on a roller-coaster ride today. Energies and precious metals rallied in early trading on statements concerning the situation in Libya and then broke sharply after the IEA & Saudi Arabia issued statements concerning the replacement of any oil production may be lost in Libya


Link to the IEA Statement
                                                                                                                                                                                                                                 

Bullet Points:
Weekly Jobs Report (Click to view)

New Claims: Prior=419K Est=412k Act=383  Lowest level since 07.08

4-wk average: Prior=431.5k Act=415.5

The snowstorm that swept through the Midwest and Northeast in the week may have impacted unemployment filings.

#2) EIA Natural Gas Storage Report 
Weekly Change in Inventories; Prior= -189bcf Est= -190bcf Act= -209bcf

Natural gas supplies are down 4.4% from year=ago levels and 2.1% below the 5 year average

3) Treasury Budget;

Level; Prior= -$80.oB Est=-$60.0B Act= -$49.8B

Receipts are up 9.4% so far this year, while spending is up 4.8%

4) Feb '11 OPEC Monthly Oil Market Report
The report includes a very good discussion about the WTI/Brent spread and details the fundamental and financial factors that are driving this spread.



Hi=473.97 Q2'08 Lo=200.16 Q1'09
50% retracement=336.90
Reached 336.29 on 1.19.11

The CRB commodity price index reached a two year high (336.29) on 1.19.11 last week.
That is as close as you are going to get to a Fibbinocci 50% retracement point. Gold has lost some of its safe-haven appeal , rumors that the Saudis have increased output and demand worries are hitting the pricing of many base metals.