June 07, 2007
Worries about gasoline supplies
Robert Rapier has some concerns about what could be in store for the U.S. this summer.
Product inventories give us a very useful way to smooth out production relative to the predictable seasonal variations in demand as well as to respond to unpredictable disruptions in supply. But, as Robert Rapier notes, that cushion is not feeling all that comfortable at the moment:
If you look at the historical trend, what has happened is that in every year since 2001, the gasoline inventory gains of the spring flattened starting in June, and then decreased in July and August. The inventory draw was as much as 21 million barrels in 2005. And it is almost universally true that levels at the end of August are lower than levels in June, because July and August are when demand really starts to pick up. This is why many still feel like we have a potential problem.
EIA estimates of U.S. gasoline inventories, via R-Squared Energy Blog
In [the above figure], you can see that while inventories have been on the rise, we are just about at the point that they historically flatten out. Then, toward the latter part of June to early July, they take a nose dive. From current inventory levels, that would drop us below the 190 million barrel mark, which could once again cause prices to spike again.
Yet, we may in fact skate by if there are no unforeseen problems. If we have no disruptions from hurricanes, imports stay strong, and we have no major refinery outages, we are likely to slowly climb out of this hole. But recent history suggests that we are likely to see more draws over the summer, exacerbating an already tight inventory picture.
Rapier relates the following calculation from OPIS as to how tight that inventory picture could be:
New England and the Southeast, both regions that could suffer a direct hit in this year's hurricane season, have some of the lowest inventories in the U.S. Just how thin is the supply cushion? About 11 gallons per person is all that is available, according to an analysis of inventory data by Oil Price Information Service.
Just in case you're having trouble connecting the dots, let me spell out what this means. It suggests there's a significant risk that this summer we may see more congressional inquiries into who's to blame for all that price gouging.
Posted by James Hamilton at June 7, 2007 05:24 AMdigg this | reddit
The scariest part is that, according to these same researchers, the minimum operating level, that is, the stocks that are not really sitting somewhere waiting but are in pipelines, trucks and trains, is about 185 million barrels. So the 0 line in that graph is really between the bottom and the 190 line...
If the blue line follows parallel to the average zone, it will cross the minimum operating line in August. So prices have to go up more than average to have a better than average stock behavior.
Posted by: Ezequiel Martin Camara at June 7, 2007 07:59 AM
The markets seem a little more sanguine about the situation. Prices fall month to month from July to August to September and on through the year, getting below $2 wholesale by October. We really should be below $3 retail within a month or so.
Posted by: Hal at June 7, 2007 10:51 AM
TradeTheNews Economic Forecast: INT'L TRADE
Cargo Execs: April Trade Gap Narrows as Oil Imports Plateau, Dlr Softens
�Import Rebound from the Chinese New Year Lull Fails to Impress
�Oil-Related Imports Flat Versus March, But Seen Shooting Up Again in May
�Auto Imports Softened in April, Nosedived in May
NEW YORK (EconoPlay) June 6 � Export growth remained on a consistent upward trajectory in April, influenced by a weakening dollar � spelling relief for the monthly trade gap in defiance of continuing, heavy petroleum-related imports, cargo officials say.
Imports are presenting a fuzzy and fractured portrait these days. Consumer goods from Asia rebounded from the Chinese New Year hiatus but failed to match year-ago levels. Auto imports slowed in April then took a stunning dive in May.
Petroleum-related imports in April were about even with heavy March inflows. But the trade gap could widen again in May as gasoline imports spiked ahead of the summer drive season at record prices.
The U.S. Commerce Department is scheduled to release international trade data for April on Friday at 8:30 a.m. ET. The above commentary also explored May on a preliminary basis
Posted by: Mark at June 7, 2007 12:09 PM
Why the scare? It looks like current inventory is just under 200M barrels, and the bottom of the average range is about 210M barrels. It seems like we are very far from depleting the inventory.
Posted by: ErikR at June 7, 2007 01:49 PM
For the last coupe of years we have been running with above normal inventories. Exactly what one would expect when prices are rising sharply as it becomes very profitable to build inventories.
So now we see inventories falling to below normal.
Does this hold a message about what "insiders" think will happen to gas prices?
Posted by: spencer at June 8, 2007 06:33 AM
JDH""Just in case you're having trouble connecting the dots, let me spell out what this means. It suggests there's a significant risk that this summer we may see more congressional inquiries into who's to blame for all that price gouging.""
Perhaps a good tar and feathering would appease them or, how about an arena, make the oil execs fight each other to the death, worked for Rome for awhile. It can't possibly be relatively simple economics, can it?
Posted by: Hitchhiker at June 9, 2007 12:05 AM
Some experts expect gasoline inventories to rise over the next few weeks and the futures prices are lower. However, I noticed that Munich Re joins Colorado State University in predicting an active hurricane season:
Posted by: Charlie Stromeyer at June 10, 2007 05:51 AM
Gasoline fell below $3 yesterday, so it looks like the markets were right to predict gradual declines in prices as I noted above when I wrote, "We really should be below $3 retail within a month or so" on June 7. That was at a time when many people were predicting continued increases.
Posted by: Hal at June 26, 2007 10:50 AM
Well done, Hal.
Posted by: JDH at June 26, 2007 02:15 PM