Gasoline markets looking tight again this year

It's "déjà vu all over again" for gasoline markets in the US, as the patterns established during last year's driving season are manifesting themselves again.

And that means an unpleasant summer "rerun" for motorists albeit strong margins for refiners. A look at New York Mercantile Exchange futures prices for wholesale gasoline have topped $1/gal for the first time this year and have settled at their highest level since last June.

Much of this gain can be attributed to the rebound in crude oil prices. After falling or remaining relatively flat since mid-February, gasoline futures prices have risen 3 weeks in a row.

According to US Energy Information Administration data, regular self-serve gasoline at the pump, including taxes, averaged $1.50/gal across the US for the week ended Apr. 6. That tracks, to some extent, the recent rise in crude oil prices stemming from two agreements by the Organization of Petroleum Exporting Countries to cut oil production b a combined 2.5 million b/d in anticipation of the seasonally slack second quarter's demand decline. The first of those cuts was to kick in as of Feb. 1, the second as of Apr. 1. While there remain questions about how faithfully OPEC is adhering to the cuts, the perception that more crude is coming off the market at a time when crude and gasoline inventories are still very low has helped bolster oil prices. Since the year-to-date low of $25.96/bbl on Mar. 20, notes the American Petroleum Institute, crude oil prices have jumped to more than $28/bbl this week.

US gasoline supply woes

Let's not blame (or credit, depending upon your point of view) OPEC alone for the rise in gasoline prices.

On a per-gallon basis, the recent rise in gasoline prices has actually outpace that of crude oil. And the big spike in average gasoline prices last summer did not follow a comparable rise in crude oil prices.

Last summer's huge jump in gasoline prices owed more to the infrastructure and regulatory problems affecting the US gasoline supply system. New rules governing the specifications for fuels have spawned a "balkanization" of the US gasoline markets, reducing the system's flexibility to handle the transition to new fuels. So when a supply outage occurs-as was the case in the US Midwest last summer, with refinery and pipeline outages in the market most vulnerable because of its "boutique nature-the price effects are amplified.

Signs of an undersupplied US gasoline market already began to show up early this year. The International Energy Agency, in its Apr. 12 monthly market report, noted that the New York Harbor gasoline-to-crude oil prices spread more than doubled in January, pulling 70% more finished gasoline imports from Europe and the former Soviet Union to North America than in December. It says something about the state of the US gasoline when this sort of anomaly can occur in the dead of winter.

Summer gasoline problems

It's a safe bet that US gasoline markets will be tight again this summer, notes IEA: "Low stocks are contributing to a 'crisis' situation, first in gas oil and then in gasoline, as refiners attempt to balance their operations to meet peak seasonal product demand.

"Refiners on both sides of the Atlantic have had to adapt to the new market realities. They have shown remarkable flexibility and resilience. Nevertheless, tight crude and product stocks have contributed to significant uncertainty and end-user price volatility."

And refiners are seeing their flexibility and resilience tested to the limit, as a host of seasonal maintenance turnarounds are taking longer than expected to complete this season, which suggests that the amount of repair work needed after the end of the heating oil season has proven to be much greater than previously believed. Evidence of that is the recent dip in refinery utilization rates, last week falling below 90% for the first time in months.

An omen of this summer's likely price spikes was the jump in gasoline futures prices this week-up a whopping 25¢/gal since the beginning of March and more than a nickel just since the start of the week-that resulted from the explosion and fire at the former Coastal Corp. refinery on Aruba now operated by El Paso Corp. While the Aruba plant produces no finished gasoline, it does produce a lot of the feedstocks for blending gasoline at other refineries. That merely exacerbated a trend of upward price pressure emanating from 6 consecutive weeks of gasoline inventory declines. Even the small (315,000 bbl) increase in gasoline stocks for the week ended Apr. 6 brought US gasoline stocks to a level that was still almost 18% below the comparable year-ago level.

Even with gasoline stocks so low, prices high, and the economy slowing, is there much prospect of relief with reduced demand? So far that hasn't been the case, as the consensus is for an increase in gasoline demand this year of as much as 9%. While a slowing economy typically squeezes overall gasoline consumption, high oil prices also tend to boost air and sea travel costs as well. So while some motorists are curbing their "nonessential" driving, others are opting for travel by auto this year because those squashed stock portfolios and layoffs are ruling out that $5,000 Caribbean cruise or those $4,000 airline tickets to China. So the net result might be an offsetting balance.

Refiners' outlook

So what does all this mean for refiners? An indicator of an answer to that question is in the observation by IEA that, during the second half of March, Atlantic Basin gasoline emerged as a key source of support for crude prices, instead of the other way around.

March refined product prices declined a bit, but less so than did crude prices. And, correspondingly, product stocks fell more steeply than crude stocks increased. As a result, refining margins benefited.

Merrill Lynch notes that average first quarter refining margins for all of the major North American and European refining centers have topped those for first quarter 2000.

Whether those higher margins persist, suggesting a fundamental secular improvement in the refining business today is, indeed, under way, or whether the economic slowdown derails the sector's recovery, is the subject of next week's column.

OGJ Hotline Market Pulse
Latest Prices as of April 13, 2001

Click here to enlarge image

null

Click here to enlarge image

null

Nymex unleaded

Click here to enlarge image

null

Nymex heating oil

Click here to enlarge image

null

IPE Gas oil

Click here to enlarge image

null

Nymex natural gas

Click here to enlarge image

null

Related Articles

Three sentenced in fictitious-trade case

12/22/2009 A former managing director of North American natural gas sales at El Paso Merchant Energy (EPME) and two of the El Paso Corp. division’s gas ...

Haynesville buried-array seismic work set

11/18/2009 El Paso Corp. let contract to MicroSeismic Inc. for a buried-array seismic monitoring program in its Haynesville shale development program south of...

Tudor Pickering Holt forecasts dramatic rise in gas prices

11/05/2009 Tudor Pickering Holt & Co. (TPH) foresees a fairly dramatic recovery in natural gas prices next year, a spokesman told an Oct. 29 energy financ...

Texas-South

11/04/2009 El Paso Corp. said it has almost doubled its lease position to 112,000 net acres in the South Texas Cretaceous Eagle Ford shale gas-condensate play...

Oklahoma

09/23/2009 Credo Petroleum Corp., Denver, said the Southeast Hewitt Unit in which it holds 17% interest has produced 785,000 bbl of oil due to waterflooding f...

FERC issues final EIS for FGT expansion project

09/22/2009 The US Federal Energy Regulatory Commission’s staff issued a final environmental impact statement on Florida Gas Transmission Co.’s Pha...

Camamu-Almada basin block to be relinquished

09/21/2009 A group led by Petroleo Brasileiro SA (Petrobras) plans to relinquish the B-CAM-40 exploration block to Brazil’s Agencia Nacional do Petroleo...

El Paso settles SEC reserve reporting charges

07/15/2008 El Paso Corp. and five former employees settled federal charges of inflating, or participation in inflating, reported proved oil and gas reserves i...

El Paso moving forward with Ruby pipeline

06/26/2008 El Paso Corp.'s subsidiary, Ruby Pipeline LLC received more than 1.1 bcfd of binding commitments from gas shippers for its Ruby pipeline under 10-1...

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts


On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.

register:WEBCAST


US HYDROCARBON EXPORTS Part 3 — LNG

Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected