1. Crude and Gasoline
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4. Energy Briefs
A number of strange happenings beset the oil markets last week. A rather large cyclone came out of the Arabian Sea, glanced off Oman and made for the Straits of Hormouz; for a while, Turkey was reported to be invading Iraq; and the EIA’s weekly petroleum status report contained several surprises. By week’s end however, the markets decided that there was nothing really to worry about so prices fell.
The heavily-hyped cyclone did little more to oil production than slow down shipping in the Gulf. The Turkish “invasion” of Iraq’s Kurdistan turned out to be a minor border incursion of no immediate consequence to oil production.
The US gasoline stockpile report brought mixed news last week. In contrast to expectations, refinery utilization dropped considerably and gasoline consumption continued to rise. Again the salivation was another banner week for imports of foreign gasoline. The EIA reported that US gasoline stockpiles climbed for the fifth straight week, this time by 3.5 million barrels from the week before. For a while analysts were asking how stockpiles could grow by so much in a week when production and imports dropped and consumption climbed. The EIA, however, calmed those fears by explaining that the previous week’s stock growth was probably underreported.
Once again however gasoline imports were tilted to the West Coast, so that East Coast gasoline stocks are at an extremely low 51 million barrels as compared to the normal 60 million at this time of year. The risk of shortages in the wake of a hurricane strike on the US mainland this summer is very high.
Nothing much changed the global oil story last week. OPEC still maintains there is plenty of oil production, while the International Energy Agency warns of higher prices later in the year if production is not increased. For the moment US gasoline prices are dropping as traders focus on the steadily-increasing gasoline stockpiles and discount continuing refining problems as something that will be handled by imports.
Meanwhile, Guy Caruso, head of the EIA predicted that gasoline prices will fall another 10 cents or so in June, but warned of renewed price spikes during the July and August driving season.
There was some good news out of Nigeria last week when several of the major militant groups agreed to suspend kidnappings and attacks on the petroleum infrastructure until the end of June. This moratorium is to give the new government and the insurgents time to discuss compromises that will end the insurgency.
The heart of the matter, however, is whether the new President has the power and political support to redirect a sufficient share of the oil revenue to Niger Delta villagers to satisfy the insurgents. Given the culture of corruption that pervades the country and the tenuousness of the new administration’s hold on power, it is difficult to see how a satisfactory solution can be negotiated in the near future.
In the meantime, some 750,000 b/d of oil production remains shut down; kidnap-for-profit gangs are still running rampant; the British government just warned all its citizens to get out of the Niger Delta; one insurgent group is threatening to hold a group of Schlumberger employees hostage until the government releases an insurgent leader; fuel and electricity shortages are endemic; and a general strike over a variety of issues in scheduled for this week.
The U.S. Congress has begun what could be a drawn-out markup and debate of several energy and emissions reform bills. Thus far, the general tenor of the discussion leaves one with the impression that the country and the Congress are deeply divided over energy strategy and there is little realization that serious energy problems may be only a few years away. While there is a growing recognition of the need to slow emissions and reduce “dependence on foreign oil,” the need to maintain the status quo and not inconvenience anyone or cause anyone economic hardship still trumps serious efforts to come to grips with the problem.
Pending proposals to increase efficiency standards for cars and trucks have set target dates so far out as to be meaningless in the context of an imminent peaking of world oil production. It is clear that Detroit automakers and their allies in Congress still believe the future of the US auto industry is still tied to selling substantial numbers of large, low mileage vehicles, in the face of steadily increasing gasoline prices.
Currently Detroit seems to be favoring a House proposal (Boucher/Dingell) and a Senate proposal (Levin/Stabenow) which are both more lenient than that proposed by President Bush and California Senator Feinstein. Under these new plans, cars and trucks would maintain two different fuel economy standards. The standard for cars would increase to 36 mpg by 2022; the standard for trucks would increase to 30 mpg by 2025. The Boucher/Dingell bill also bars states from implementing greenhouse gas limits on vehicles. This would preclude California and the other states adopting California regulations from acquiring the waiver from the EPA required to greenhouse gas limits on new vehicles.
[To build a new refinery] “You're looking at seven to eight years and costs in the billions. Kuwait was looking at building a refinery. It was originally projected to cost $6 billion. Last November the price had run up to $10 billion. By February, it was $16 billion and the project was canceled. In the U.S. we're looking at twice the cost because of pollution controls. Now are you going to go to your board of directors and argue for an investment like that?”
-- Lynn Westfall, chief economist for gasoline distributor Tesoro
Last week the EIA reported that Gasoline reserves in PADD I (the east coast district) had fallen to 51.5 million barrels vs. the 60 million barrel average for this time of year.
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