• 1 day PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 2 days Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 2 days Syrian Rebels Relinquish Control Of Major Gas Field
  • 2 days Schlumberger Warns Of Moderating Investment In North America
  • 2 days Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 2 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 2 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 2 days New Video Game Targets Oil Infrastructure
  • 2 days Shell Restarts Bonny Light Exports
  • 2 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 2 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 2 days British Utility Companies Brace For Major Reforms
  • 3 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 3 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 3 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 3 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 3 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 3 days Rosneft Signs $400M Deal With Kurdistan
  • 3 days Kinder Morgan Warns About Trans Mountain Delays
  • 3 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 3 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 4 days Russia, Saudis Team Up To Boost Fracking Tech
  • 4 days Conflicting News Spurs Doubt On Aramco IPO
  • 4 days Exxon Starts Production At New Refinery In Texas
  • 4 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 5 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 5 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 5 days China To Take 5% Of Rosneft’s Output In New Deal
  • 5 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 5 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 5 days VW Fails To Secure Critical Commodity For EVs
  • 5 days Enbridge Pipeline Expansion Finally Approved
  • 5 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 5 days OPEC Oil Deal Compliance Falls To 86%
  • 6 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 6 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 6 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 6 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 6 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 6 days Aramco Says No Plans To Shelve IPO
Alt Text

Hurricane Irma’s Wrath Weighs On Natural Gas

Hurricane Irma has left some…

Alt Text

Will Low Oil Prices End Saudi Arabia’s Gas Subsidies?

Feeling the fiscal pressure from…

Dave Summers

Dave Summers

David (Dave) Summers is a Curators' Professor Emeritus of Mining Engineering at Missouri University of Science and Technology (he retired in 2010). He directed the…

More Info

Gasoline Prices and the Oil Supply Problem

Gasoline Prices and the Oil Supply Problem

I paid $50 to fill my tank at a gas station in Maine this morning, at a cost of almost $4 a gallon. When the Actress muttered some comment of protest, I told her that she had better get used to the price, because it is hard to see any normal reason for a decline in that price in the near future.

The EIA TWIP today was discussing the transportation fuel market this summer, and begins by noting:

Regular-grade gasoline retail prices, which averaged $2.76 per gallon last summer, are projected to average $3.86 per gallon during the 2011 driving season. The monthly average gasoline price is expected to peak at about $3.91 per gallon by mid-summer. Diesel fuel prices, which averaged $2.98 per gallon last summer, are projected to average $4.09 per gallon this summer. Weekly and daily national average prices can differ significantly from monthly and seasonal averages, and there are also significant differences across regions, with monthly average prices in some areas exceeding the national average price by 25 cents per gallon or more.

Well right now, before driving season starts, the price was $3.97 for regular – but the EIA have the “out” that this is after all Maine, which is at the end of the delivery line. Ah, well!! But I suspect that the EIA is still being a tad optimistic, and may regret that $0.25 error bar by the end of the season.

Their estimate, and the rationale for it are given in the new Short-term Energy and Summer Fuels Outlook with the price of West Texas Intermediate (WTI) at $112 (it has since fallen $5) . The EIA is expecting the market to tighten, based on the turmoil in the Middle East and North Africa, and “robust” growth of demand. But they only increase the anticipated average price of WTI to $106 this year, and $114 next. And in this I think that they are being rather too optimistic given the times. And that includes their estimate that the price of gasoline will still be below $4 (at $3.80 average) through the end of next year. (Though they do add a caveat that there is a 33% probability that prices could get over $4 on average this July).

And in an aside (since the topic today is mainly crude oil) it is worth noting relative to my post on the EIA World Gas Shale report that the EIA are projecting that the Henry Hub price for natural gas will remain around $4.10 per kcf in 2011 i.e. below the 2010 average, and it will only rise to $4.55 per kcf in 2012 – which doesn’t make those gas shale drilling balance sheets look any prettier.

The oil supply problem itself is sufficiently worrying. As with others they are still predicting a global increase in demand of 1.5 mbd this year, expecting that it will rise an additional 1.6 mbd in 2012. OPEC (whose daily barrel is currently at $117) expects that with the tragedy of the earthquake and tsunami in Japan, that there won’t be quite as much growth as previously expected, and thus are only anticipating a growth in demand of 1.4 mbd this year. As their April Monthly Oil Market Report notes, they do not expect countries outside of Japan to be affected, and thus they continue to anticipate a world economic growth of around 3.9%.

As I mentioned in an earlier post there were a number of Japanese refineries which were damaged, and the country which was refining about 4.5 mbd had an immediate drop to 3.1 mbd. That has now been partially restored as some refineries have increased production, and others have been repaired. However the country as a whole is still reported to be about 617 kbd short of the pre-earthquake figure. (And there are three coal-fired power plants Haramachi Tohoku, Kashima Ibaraki, and Hitachinaka Ibaraki that are still off-line and 9 of 210 hydro-electric plants were damaged. )

Nevertheless Middle Eastern suppliers stopped some of the shipments to Japan, and this may well be what is being seen as a short-term decline in demand. (OPEC saw a drop of around 0.5 mbd in tanker shipments in March). However OPEC anticipate that there will have to be substitution for the loss in Japanese nuclear power, since that cannot be restored or replaced with equivalent new nuclear power stations in less than several years. As a result they expect that the demand for oil as a replacement fuel (the loss could be made up by about 200 kbd of oil equivalent fuel) will increase later in the year.

OPEC expects that 0.6 mbd of the overall global increase in demand will be supplied by non-OPEC countries, with Brazil, the United States, Canada, Colombia and China increasing production, while the UK and Norway will show the greatest declines. That leaves the rest for them, and bearing in mind the loss from Libya, and other potential losses around MENA, though OPEC itself only expects to see demand for its oil increase about 0.4 mbd. (Which arithmetic doesn’t quite compute – but never mind – I am assuming that the rise of 0,4 mbd includes the offset to cover the losses in production within OPEC, and that with the 0.4 mbd OPEC increase, and the 0.6 mbd non-OPEC increase, that the world will only be 0.4 mbd short – which might come from NGL increases). Incidentally OPEC anticipates that Chinese demand will grow 0.5 mbd to 9.5 mbd.

There is an interesting comment in the OPEC report relating to the poor performance of natural gas prices (as I have been discussing).

Nevertheless, a sustained upward trend in HH natural gas prices may appear if there is a radical change in the US energy policy regarding nuclear production, which seems unlikely at present. According to Barclays, in order to rebalance the US natural gas market via higher demand, it would be necessary to shutter a large amount (13-26%) of total North American nuclear capacity.

Well I have to confess that is one answer that I hadn’t thought of applying in order to get the shale drilling companies off the hook.

By. Dave Summers

David (Dave) Summers is a Curators' Professor Emeritus of Mining Engineering at Missouri University of Science and Technology (he retired in 2010). He directed the Rock Mechanics and Explosives Research Center at MO S&T off and on from 1976 to 2008, leading research teams that developed new mining and extraction technologies, mainly developing the use of high-pressure waterjets into a broad range of industrial uses. While one of the founders of The Oil Drum, back in 2005, he now also writes separately at Bit Tooth Energy.




Back to homepage


Leave a comment
  • Anonymous on April 16 2011 said:
    Instead of calling the Colonel to Paris and Washington for a heart-to-heart, planes are sent to Libya to protect civilians. What about protecting civilians in Paris, London, and Washington, and the children of civilians in Copenhagen, since the last time I was there the streets close to the main train station were filled with dope sellers. But in any event now we have an oil price over $100/b, and OPEC is going to do everything possible to keep it there.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News