Peak oil; prices that is

Crude production up; demand down

Refiners Are Rocking!

In another sign that we are seeing a major shift in the fundamentals of the U.S. oil market, yesterday’s Energy Information Administration weekly Petroleum Status report provided more evidence for my prediction that U.S. gasoline prices may have peaked forever or for a very long time. Refiners just rocked an abundance of relatively cheap crude supply and drove refinery runs to 92.6% the highest level since July of 2007. For those of you keeping score that is before that financial crisis really began to break and gas demand in the United States was near record highs. The reason for the surge in runs is because of booming U.S.  and Canadian oil production. 

The reversal of the Seaway Pipeline has helped Gulf Coast refiners turn huge profits. Gulf Coast oil supplies hit the highest level since May of 2009 and refining margins have improved dramatically because of that abundance of crude. Gas production soared to 9.3 million barrels per day increasing gas inventory by 2. 1 million barrels which is the lower end of the average range for this time of year.

Yet while the refiners ramp up, demand is still weak by historical standards. Gas demand, as inferred by the EIA data, is still down 4.8% from a year earlier. This is a clear sign that gas demand in the United States has been hit with permanent demand destruction. Still gas demand is expected to improve this Fourth of July. AAA, as reported by the Wall Street Journal, says that, “Fourth of July travel is expected to jump nearly 5% this year from 2011. But because the holiday falls on a Wednesday, travel plans are likely to be spread over more days, which could ease congestion. Lower gasoline costs also should mean smaller fuel bills.

AAA estimates 42.3 million Americans will travel 50 miles or more from home during the coming holiday period, a 4.9% jump from last year. The projected travel volume matches that of 2007, the high point of the past 10 years, and marks an increase of nearly 42% from 2009.

The Independence Day travel period is normally five days long. But because the holiday falls in the middle of the week, people are expected this year to be traveling for six days, with the option of including a weekend and two week days either before or after the actual holiday. AAA defines the 2012 holiday travel period as Tuesday, July 3, to Sunday, July 8.

Crude supply overall did fall in the report and that, coupled with better than expected U.S. economic data, gave oil a bit of a boost. Still today with German data weak and concerns over what may not happen at the EU summit may damper the budding economic optimism. 

 

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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