Developments this week
The major news so far this week was the announcement by Saudi Oil Minister al-Naimi on Tuesday that his country is currently producing 9.9 million b/d and has the capacity to boost production by an additional 2.5 million b/d immediately. This news sent NY oil prices down by $2.50 a barrel in NY. London and NY prices partly recovered on Wednesday with NY closing at $107.27 a barrel and London at $124.20.
There has been little news on the Iranian situation this week other than reports that the sanctions are continuing to tighten around the Iranians.
US retail gasoline prices continue to climb steadily, with the national average for regular now at $3.86 – up five cents in the last seven days -- and Oregon joining seven other states in the over-$4-a-gallon-club. The EIA’s number which averages together all grades of gasoline is at $3.92 a gallon. Sensing a winning campaign issue, the Republican candidates for President are going after the President for his alleged failure to control gas prices. The President in turn has left on a nation-wide “energy blitz” touting his energy policies. The week has seen several pronouncements from various economists that gas prices were worse in the 1970s by various indicators and that we really shouldn’t worry unless prices get above $5 a gallon.
This week’s stocks report showed crude inventories falling by an unexpected 1.2 million barrels. This probably had more to do with fog along the Gulf coast which kept 67 ships waiting offshore than for any increase in demand.
For several months now, the EIA has been reporting that US gasoline and diesel consumption were down by a rather spectacular 7-8 percent as compared with last year. This assertion has raised the suspicions of numerous analysts that there is something wrong with the EIA’s consumption numbers as other indicators were not showing that much of a decline in economic activity. This week’s report has gasoline consumption down by 7.8 percent and distillates down by 8.5 percent.
On Wednesday the Wall Street Journal ran a story saying that the problem is in the way gasoline demand, both foreign and domestic, is calculated and that the EIA had been seriously underestimating the surge in exports and how much of the US refinery output was leaving the country. Last summer, the EIA was assuming that US gasoline exports were on the order of 250,000 b/d when in fact they were well over 500,000 b/d. The administration has since changed its methodology, but this has resulted in a sharp drop in the apparent size of domestic fuel consumption this year. This in turn has resulted in the large decline in domestic consumption as compared with last year as the consumption numbers for last year were inflated.
While it is obvious that high prices are curtailing consumption, a spokesman for the EIA now says that a 4 percent drop in the year over year comparison is probably a better number than they had been reporting. The more optimistic Wall Street analysts put the decline in consumption at only 2-3 percent this year.