Dallas Fed analysts see reprieve from record-high crude oil prices

World oil prices apparently have been given a reprieve from their early summer peak, two analysts in the Federal Reserve Bank of Dallas' economic research department contend.

Prices pulled back 20% from a record $147.27/bbl on July 11 to close at $118.58/bbl on Aug. 6, Stephen P.A. Brown and Jackson Thies said in their latest quarterly energy update on Aug 14. "Even after the recent decline, prices are almost 60% above year-ago levels and up around 20% year-to-date. The futures market was in backwardation on Aug. 6, with the December 2010 contract closing at $115.95, implying that markets expect the long-term price of oil to be slightly lower," they observed.

Like their counterparts at the US Energy Information Administration, Brown and Thies said that slower growth in demand reflecting a slowing global economy is the likeliest cause of falling oil prices. Reduced fuel subsidies for consumers in China, India and some Middle East nations are adding to downward pressure, although the Dallas Fed analysts noted that such subsidies have been reduced, but not eliminated.

"A large portion of the increase in world oil consumption has been driven by the larger emerging economies of China and India. For instance, in an attempt to further reduce pollution in advance of the Olympic Games, China switched a large amount of its electricity generation from coal to diesel. China is also thought to have stockpiled oil and diesel in advance of the games to ensure there are no shortages due to the influx of participants and spectators," they said.

"Upon completion of the Olympic Games, it is expected that the Chinese will continue to phase out their subsidies, with the goal of eliminating them by the end of 2009. If there is a drop in Chinese demand following the Olympics, there will most likely be further downward pressure on oil prices," Brown and Thies said.

Diesel and gasoline

They said that diesel fuel prices came down in tandem with oil, but strong demand from China and India kept them solid. "One factor contributing to the strength of diesel is that refineries are configured to produce more gasoline than diesel fuel. This configuration is based on past consumption patterns and is making it difficult to get enough diesel out of each barrel of oil," they observed.

US retail gasoline prices have hovered at a national average of $3.90/gal after peaking at $4.12 in mid-July, Brown and Thies continued. But they added that domestic gasoline prices haven't kept their normal pace with crude oil because US motorists are driving less.

"Gasoline inventories are above seasonal norms, which is depressing refiners' margins and holding down capacity utilization. Some of the downward pressure is the result of high diesel margins. With diesel in high demand, more barrels of oil have to be processed, which increases gasoline production," they said.

Assuming that margins recover and crude prices are steady, they suggested that spot gasoline prices would be around $3.13/gal by Labor Day. "However, the futures market is not showing a recovery in refiners' margins and currently projects spot prices at $2.94 by Labor Day. This translates to a national average pump price of about $3.70/gal for regular unleaded," Brown and Thies said.

Contact Nick Snow at nicks@pennwell.com

Related Articles

Chesapeake’s $4-4.5 billion capex down 37% vs. last year

02/25/2015

Chesapeake Energy Corp., Oklahoma City, is budgeting total capital expenditures, including capitalized interest, of $4-4.5 billion for 2015.

New regulator lists UKCS ‘priority actions’

02/25/2015 The UK’s Oil and Gas Authority, responding to calls from industry and the government for prompt support of UK Continental Shelf (UKCS) exploration ...

Encana trims additional $700 million from 2015 capital budget

02/25/2015 Encana Corp. is reducing its previously reported capital investment for 2015 by $700 million to $2-2.2 billion “to maintain a solid balance sheet a...

MARKET WATCH: NYMEX crude oil prices holding above $49/bbl

02/25/2015 US light, sweet crude oil prices for April delivery settled slightly above $49/bbl on the New York market Feb. 24 while market participants awaited...

Santos-Inpex JV gains permits in Browse basin

02/25/2015 A joint venture of Santos Ltd. and Inpex Corp. has been awarded two exploration permits in the Browse basin offshore Western Australia, about 500 k...

UKCS report cites need for deep cost cuts

02/24/2015

The struggling producing industry on the UK Continental Shelf needs deep cost cuts, according to the Oil & Gas UK’s Activity Survey 2015.

IHS: Crude transported by Keystone XL would be consumed in US

02/24/2015 Most, if not all, of the crude oil that would be transported via the proposed Keystone XL pipeline to the US Gulf Coast would not be exported, and ...

EPP, Anadarko, others form NGL pipeline joint venture

02/24/2015 Enterprise Products Partners LP, Anadarko Petroleum Corp., DCP Midstream Partners LP, and MarkWest Energy Partners LP have formed a joint venture a...

Lime Petroleum farms into Gemini prospect offshore Norway

02/24/2015 Lime Petroleum Norway AS, a wholly owned subsidiary of Lime Petroleum PLC, has agreed to take 30% interest in PL338C in the North Sea from Lundin N...
White Papers

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by
Available Webcasts


OGJ's Midyear Forecast 2015

When Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

When Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST



On Demand

Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

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