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

Marathon cuts 2015 budget amid ‘current price environment’

12/18/2014 Marathon Oil Corp. expects to spend $4.3-4.5 billion in its capital, investment, and exploration budget for 2015. That total represents a 20% decli...

Patel appointed as LyondellBasell’s chief executive officer

12/18/2014 LyondellBasell has chosen Bhavesh V. Patel to serve as its chief executive officer effective Jan. 12, 2015. He succeeds James L. Gallogly, who...

MEG Energy cuts capital spending for 2015 to $305 million (Can.) from $1.2 billion

12/18/2014

MEG Energy Corp., Calgary, is reducing its 2015 capital spending plans to $305 million (Can.) from the original budget of $1.2 billion.

Cooper to buy 50% of offshore Gippsland Sole gas field

12/17/2014 Cooper Energy Ltd., Adelaide, has bought a 50% interest in the offshore Gippsland Sole dry gas field in retention lease Vic/RL3 as well as 50% of t...

Turkish refinery secures Canadian financing

12/16/2014 Export Development Canada (EDC) said it is participating as lead arranger in the $3.3 billion debt-financing consortium supporting STAR Rafineri AS...

Encana to focus spending on four core shale assets in 2015

12/16/2014 Encana Corp., Calgary, reported plans to spend $2.7-2.9 billion on its capital budget with roughly 80% of this total directed towards four of what ...

Cenovus trims budget, slows oil sands work

12/16/2014 Cenovus Energy Inc., Calgary, is trimming its capital spending in response to declining crude oil prices and will slow development of some of its t...

Repsol to acquire Talisman in $13 billion deal

12/16/2014 Spain’s Repsol SA has agreed to acquire all shares of Talisman Energy Inc. of Calgary for $8.3 billion along with assumed debt of $4.7 billion. The...

Cook to head DONG Energy E&P group

12/15/2014 David B. Cook has been named group executive vice-president and chief executive officer for exploration and production at DONG Energy, Fredericia, ...

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