Gasoline, crude, supplies and miles travelled

This winter has been a little harder, in the sense of snow on the road, than some I have experienced in the past. Which may explain, to a degree, the drop in gasoline demand that the EIA is reporting has happened over the past month.

Gasoline Demand (EIA )

If you look at this time last year the current curve seems to be tracking what happened back then, and the steady upward trend in demand that has occurred in the last two years as we move forward from this date will, I suspect, likely be repeated.

What is that going to do to gasoline prices, and with them the price of crude? Well prices have dropped back a little, bear in mind that it was this time last year that they bottomed out, and then there was a run-up until about August, which was the end of the summer driving season.


Average gasoline prices (EIA)

We have had the same sort of pattern with crude prices (and the change since last February is why I consider recent drops as relative inconsequential). Domestic crude, after a steady rise since last August, has taken a little drop, and with imports also falling, the inputs into domestic refineries are around 900 kbd off last year’s numbers.

Refinery inputs of crude (EIA)

There is still enough oil available through the market to cover an expected increase in demand over the short term, but I have a growing concern for supply on the summer of 2011.

Looking at traffic volumes, after a little hiccup in October, the numbers for November were more of a gain. The average traffic increased by 1.4%. While for the entire year through November traffic had risen by 0.3%. And this time all regions were showing an increase in traffic, although there was still a decline in urban traffic off the interstate.

Monthly changes in miles driven for 2009 relative to 2008 (FHWA )

The hiccup does show up in the running 12-month total, which has flattened, at around the levels that we were at in 2004, when the curve was merrily climbing upwards.

Cumulative miles driven through November 2009 (FHWA )

Given that car sales rose 6% last month (with the exception of Toyota) with some manufacturers showing double digit rises in sales over last year there is more promise for the economy in these numbers.

Saudi Arabia is maintaining higher levels of supply both to Asia and to Europe. And while Russia is still playing nice, as the Ukrainian election is on Sunday, and it still has a candidate or two in the race, it too has promised to keep supplies up to Western Europe. With the higher crude prices bringing a bit of stability back, perhaps we can get through this winter without any histrionics in that part of the world.

New cars, miles travelled, crude oil and Charles Gibson

Over the past three weeks we have driven to Maine and back, putting 3,000 miles on the new Fusion Hybrid and, in the process averaging some 39 mpg, with times where we got over 41. I think that it is just a little better in that regard than the Camry Hybrid we drove out in last year. And, since it calculates the distance you can travel on a tank of gas based on the average achieved, seeing a 650 mile reserve after a fill-up is quite nice. As I mentioned earlier the trunk space in the Ford is a little smaller than the Camry, and the GPS system is not quite in the Magellan or Garmin class though generally effective.

But that gets me back into my consideration as to where things are going, and a continuation of the thoughts I posted recently on the future of crude prices. I remain somewhat optimistic about where the economy is going to go. There is some evidence that house prices are starting back up a little according to the S&P/Case-Shiller index. This holds true not only in the USA but also in the UK. The numbers are sufficiently small that perhaps we should only recognize the halt in declines, rather than the hope of a continuous upturn, yet it is a start.

On the other hand the upturn in vehicle miles driven that started in April has continued with a y-o-y increase of 0.1% in May. Looking at the 12-month rolling total there is even the hint of an upturn there.

Moving 12-month total of travel on all roads (FHWA)

So what will that do to gas prices? Demand isn’t really changing that much overall for gasoline in the USA, and I really didn’t think that Charles Gibson’s “Over a Barrel – the Truth about Oil”, last Friday, was that obviously enlightening in trying to answer that question. (But if you read between the lines . . . .)


He found that gas stations make more money from their convenience store products than from gas; that all gas regardless of brand usually comes from the same pipeline, in the same truck to all the local dealers; he found that there had been no new refineries in the past 30-years, though smaller ones had closed and others had grown larger;

There are 149 refineries in the United States, 26 fewer than there were in 1995. And the top 10 oil companies control close to 80% of the country’s refining capacity.

But oil industry leaders say that was a necessary business decision in a competitive market. “The smaller, less efficient refineries really couldn’t compete in that environment. They did shut down, so we had a lot of falloff in the industry,” said Rayolda Dougher, a spokesperson for the American Petroleum Institute. “And you are right. If you had overcapacity and you are not able to sell your product at a profit. You are going to have to cut back on that capacity. But look over time, and look at the record and you will see that capacity has grown.”

The ABC report noted that while demand for gasoline has risen 15%, refinery capacity has only grown 14%. But it also pointed out that a major driver on price of product coming out of the refinery is tied to the cost of the crude going into it. And so the story moved to look at both domestic supply (the “drill, baby, drill” argument) and that available from overseas. It quoted Vijay Vaitheeswaran of the Economist, that most of the remaining world reserves of oil lie in Saudi Arabia, Iran, Iraq, Kuwait and the UAE. And the Secretary of Energy was then recorded saying that this condition promised us a “train wreck.”

To see whether this dependence on foreign oil (70% of U.S. supply) could be switched around, the crew visited the Chevron platform in the Blind Faith field 160 miles out in the Gulf. The platform is producing 65,000 bd of crude and 55 mcf of natural gas. But while this individual effort is an indication of where future supply must come from, it will not be enough to satisfy demand.

The report concluded with a remark by T. Boone Pickens suggesting that if all the areas that could be drilled around the nation were drilled and started production, that the total gain in production would only be about 2 mbd. He then pointed out that the US imports 13 mbd. We cannot break our addiction to oil by trying to drill our way of the shortfall in domestic supply.

And so the report ended with the note that gasoline, given all its travels, processing and other costs, is still a relative bargain at $2.50, because there is no recognition of the hidden costs. It really did not draw the logical conclusion that the future strength of the US economy is tied to the benevolence of those five Middle Eastern countries, nor how rapidly that dependence will become evident again. But if you wanted to read between the lines, that message was there, hidden behind the realization that domestic supply alone cannot rescue us from our situation.

Now the actual broadcast covered more ground than is given in the write-up. The good Dr Yergin made an appearance at Cushing, OK talking about the pipelines and the basis for the common established price for crude at that place. And there was some discussion of the role of speculators in driving up the price, but the underlying message remained as the written report notes, that we are heading into trouble – pity it was so well concealed.
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Some new vehicle travel numbers

As I sit waiting for “This Week in Petroleum” to update I wandered over to the Federal Highway Administration to see if the latest Traffic Volume data was available. And it is, with the numbers for December 2008 just having been posted. The reason for the interest can be seen in the plot of miles driven, that they provide, and this is the new one:

Source FHWA

It actually looks a little more fearsome than it is.
UPDATE: The TWIP information has been added.

The data plotted above is a 12-month rolling average, and when you look at the individual month data, and use the urban highways plot as representative (the argument also holds for the rural and total) you can see that driving started to drop last December relative to 2006. Through all of last year it has been down relative to 2007, but with the December figures we are starting to stabilize, and come closer to the previous years figures.

Source FHWA

In fact if you look at the regional plot, the Northeast is slightly up on last year, and most of the other regions are not down much (relative to the previous drops of around 5%).

Source FHWA

So this may mean that for most of us the situation may be stabilizing (sorry West Coast, not you yet). Now this data is still a couple of months old, and it shows that the drop is still going on, but demand for fuel may be leveling off.

Added: A little late today, the TWIP now is up, let me add the two plots from this week that I have been looking for. The first is the demand curve. Now we know from the second figure that driving started its dive last December, so the comparison is with what was already turning into a drop, but if you look at this week’s gasoline demand:
Source EIA TWIP

Then you can see that current demand, which equated to the same number as this time last year last week, has just risen above it this week based on four-week averaging. However if you look at the tabulated numbers the week saw a drop of 100,000 bd on average, which is down 200,000 bd on a year ago.

Source EIA TWIP

Which takes up back to see what is going into the refineries, and this is still paralleling the drop of last year. It is currently about 300,000 bd below last year’s figure.
Source EIA TWIP

Gas prices have now been rising for 3 weeks, while home heating oil prices have been falling for five weeks. But even as refinery input bottomed out at this time last year, so it appears to be doing the same again this year, although we may have to wait a week or two to see a clearer trend.




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