1. US Gasoline stocks
For the tenth straight week, US gasoline stocks dropped substantially – down 2.7 million barrels to 197 million. Stocks have now declined by 30 million barrels since early February. The news was tempered by the EIA report that US refinery utilization increased by 2 percent to 90.4 percent last week, leading to expectations that the gasoline situation would soon return to normal. On closer examination, however, the news was not that good.
It seems that a lot of the increase in production took place on the West Coast where gasoline stockpiles increased by 1.7 million barrels during the week. This partially offset another very large drop of 4.4 million barrels in stockpiles east of the Rockies.
Oil prices during the past week were volatile. Many traders believe U.S. crude has lost some of its usefulness as an indicator of how much oil should cost around the world because unusually large inventories at the delivery hub of Cushing, Oklahoma, have pressured the price there. Last Friday oil rose above $63 in New York and $66 in London on reports that ConocoPhillips will shut parts of a 229,000 b/d refinery in Texas for up to three weeks and concerns about the Nigerian election.
Gasoline stockpiles usually start increasing about now and reach a peak in early summer before the heavy driving season arrives. The new factor this year is higher consumption which may be tempered by the rapid increases in gasoline prices in recent weeks and lower-than-needed gasoline imports. The backlog from the Marseilles port strike should be cleared out soon and may help with the import situation.
Nearly all observers declared the Presidential election on Saturday a monumental failure as irregularities were observed nearly everywhere. The ruling PDP party’s candidate is expected to be declared the new President anyway.
Among the more interesting incidents surrounding the election was a failed attempt to blow up the national election commission’s headquarters with a gasoline truck, plus a massive assault by insurgents on the Bayelsa State Government House in the capital Yenagoa. Nine boat loads of insurgents emerged from the creeks, overcame the police and military forces in the town and burned the governor’s mansion and a police station. The Governor, who is also expected to be declared the new Vice President of Nigeria, was forced to flee the city for his life.
The raid illustrates the growing power of insurgents to strike at will and overcome corrupt and ineffective police and military forces. Some weeks back the insurgents announced a stand down during the run-up to the election but vowed to be back unless the election led to significant changes – which it clearly did not. Niger
Nigerian oil production dropped by another 100,000 b/d during March to 2.15 million b/d. Although the Nigerian government has been saying recently that Shell will soon resume
300,000 b/d of shut-in production, Shell has yet to confirm this claim. Foreign oil workers in Nigeria now are largely confined to fortified compounds and travel to job sites by armored vehicle or helicopter. A number of companies have pulled out of the country.
There was nothing in the recent elections to suggest that the situation will improve soon. The insurgents have said they will step-up attacks following the election and usually make good on their promises. Prospects for reduced Nigerian oil production seem likely.
3. Chinese growth
The news that China’s economy grew by 11 percent in the first quarter, and that China is now a net importer of coal, coupled with the EIA projection that China will soon surpass the US as the world’s biggest emitter of carbon dioxide, raises the issue of just where China is going.
For the last 25 years, the Chinese have been undergoing an economic boom with little attention to efficiency or the environment. There are now 30 million cars in China and the number is growing by 20 percent a year. Power use in China, the world's biggest coal producer, is rising 13 percent annually, and a new power plant is opening every four days. The world oil markets are under constant pressure from Chinese demand.
A recent Chinese government report on global warming rejects binding caps on carbon emissions until the country is “modernized” around the middle of the century. While the Chinese realize they are creating an environmental disaster, the forces pressing for modernization are simply too strong to be overcome by appeals to reason. In short, China seems a nation out of control on the issue of growth vs. the environment.
A standoff has developed between the US and China in that currently each sees no reason to cut back on emissions unless the other does the same. The Chinese believe that it is now their turn to modernize as have other nations before them.
There seems no immediate way out of this impasse. The urge to grow trumps the specter of damage from climate change until major shortages of fossil fuels develop, economic recession sets in, or devastating environmental disasters occur. The US and Europe, however, seem intent on instituting serious emission controls in the near future. Should this happen, pressure will increase on China to do likewise.
Quote of the week
"The world's breadbasket is fast becoming the U.S. fuel tank."
-- Lester Brown, Earth Policy Institute.
Commentary: Humbugs Along the Potomac
By Michael Vickerman, RENEW Wisconsin
(Note: Commentaries do not necessarily represent ASPO-USA's positions; they are personal statements and observations by informed commentators.)
Editor’s Note: The Energy Information Administration offers a valuable compendium of statistics at its website, www.eia.doe.gov. There you can find a treasure trove of information on oil, natural gas, coal, electricity, carbon emissions, and other subjects. If this is all the EIA did, it would deserve kudos from everyone interested in energy subjects. But the agency, part of the U.S. Department of Energy, also serves as the federal government's chief forecaster of future energy supply and prices. In this role its track record has been absolutely abysmal. In part because the agency seems to think its mission is to reassure policy makers that "all is well," and in part because its National Energy Model lacks any resource constraints or depletion function, time after time the EIA has demonstrated a maddening tendency to overestimate energy supplies and underestimate energy costs. This week's commentator can't take it anymore.
“Oh, no, my dear … I am a very good man
I’m just a very bad wizard”
--The Wizard of Oz
In its latest staged display of bureaucratic omniscience, the Energy Information Administration (EIA) said last week that retail gasoline prices across the nation, which have jumped 25% since January, will peak at $2.87 a gallon next month and then recede before the vacation driving season begins in June. The average price motorists will see this summer will be $2.81, a bit less than what they paid in the previous two summers. EIA’s current forecast comes one month after its previous prediction that gasoline prices would level off this spring at $2.67 a gallon.
The agency’s sunny blandishments may cause a few eyebrows to be raised among the millions of West Coast motorists already paying more than $3.00 a gallon at the pump. Then again, maybe not. With a track record for erroneous forecasting that verges on the spectacular, why should anyone bother to listen to EIA when more reliable predictions can be found on the daily astrology page?
When agency statisticians issue predictions like these, they are going well beyond the cut-and-dried world of extraction volumes, refinery outputs, fuel imports, and implied demand for refined products. Embedded in EIA’s monthly prognostications are assumptions regarding, for example, hurricane activity, geopolitical tensions, the structural integrity of key pipelines, and the veracity of OPEC’s communiqués. And every month these statisticians peer into the future and conclude, perhaps with the aid of tarot cards and/or tea leaves, that nothing that could go wrong will go wrong.
According to EIA’s oracles, hurricanes will not menace the Gulf of Mexico this year, despite the strengthening La Niña, nor will violence and warfare erupt anew in the Mideast. What about ongoing refinery shutdowns, one might ask? Bad luck, the agency would say. Deteriorating security conditions in Nigeria? A temporary phenomenon. China’s escalating demand for energy? OPEC can handle it.
One might think it prudent to factor in a risk premium to account for the likelihood that events beyond our control will disrupt the flow of fuels and drive prices higher. But in the Panglossian cocoon that EIA inhabits, Murphy’s Law doesn’t exist.
Had last week’s divinations come out of the mouth of, say, Carnac the Magnificent, the audience would have snickered at its sheer preposterousness while steeling themselves for the withering desert-themed curse that was sure to come. But when it’s EIA and not Johnny Carson that’s masquerading as a swami, there’s no Ed McMahon on hand on to cue the laughter. Instead, the agency lined up a spokesman from the American Automobile Association to lend instant credibility to its forecast.
“We think the forecast is about on track,” said AAA spokesman Geoff Sundstrom. That bit of stage management was enough to transform yet one more ridiculously off-the-wall prediction into an Associated Press article reprinted in numerous metropolitan dailies under headlines like “Gas prices may be cheaper this summer.” While the article dinged EIA for underestimating this year’s price increase, it failed to balance the presentation with a contrarian perspective challenging the government’s reassurances.
But not everyone at EIA is swallowing the agency’s Kool-Aid with the requisite gusto. In a bow to reality, EIA Chief Guy Caruso openly frets over gasoline inventories, which are unusually low considering the proximity of the summer driving season.
“The volume of imports is lower than we thought,” Caruso said to a Dow Jones reporter.
What disturbs Caruso is the recent decline in the volume of gasoline imports, coupled with an unexpected series of refinery shutdowns both home and abroad. Refiners are struggling to keep up with accelerated demand at the same time the world’s petroleum supply is gradually becoming heavier and more laden with impurities like sulfur. Some U.S. refineries cannot process lower-grade crude at all, which leaves the country increasingly dependent on gasoline imports.
Moreover, EIA estimates that U.S. gasoline demand is 2% to 3% percent higher than it was a year ago, and shows no sign of tailing off. With that, the illogic of EIA’s outlook becomes transparent. How can inventories rise when demand is running higher than available supply? Why would gasoline prices drop under those circumstances? And, why would overseas refiners step up exports of gasoline to the United States if lower prices are baked into the equation?
EIA’s monthly and annual predictions have only one purpose: to prevent the mainstream media from alerting the driving public to the fragility of the domestic energy picture. And to that end last week’s stunt succeeded, despite Mr. Caruso’s worries. The vast majority of reporters and editors clearly lack both the technical expertise and the inclination to challenge these official reassurances on energy. In the absence of a full-blown crisis, the humbugs behind the curtain will continue to use the power of illusion to stop us from learning the truth about the energy squeeze that’s upon us.
EIA Chief: Concerned about low gasoline imports,” Peak Oil Daily. April 16, 2007. http://aspo-usa.com/
Gas prices may be cheaper this summer,” F. Josef Hebert, Associated Press, April 11, 2007. hosted.ap.org/dynamic/stories/S/SUMMER_GASOLINE?SITE=OHCOL&SECTION=HOME&TEMPLATE=DEFAULT
Petroleum and Natural Gas Watch is a RENEW Wisconsin initiative tracking the
supply‑demand equation for these fossil fuels, and analyzing its effects on prices,
consumption levels, and the development of energy conservation strategies and renewable energy alternatives. For more information, visit www.renewwisconsin.org.