This Week in Petroleum 7-18-07

It’s been a while since I updated one of these, but this seems like a good time for an inventory review. Crude inventories are very high, distillate inventories are about normal, and gasoline inventories were gradually clawing their way back, but are still very low for this time of year. But in a big surprise this week, gasoline inventories sharply reversed direction from their recent trend. (However, falling inventories are the norm for this time of year).

Some highlights from the text file:

Refineries operated at 91.0 percent of their operable capacity last week. However, gasoline production dropped compared to the previous week, averaging nearly 9.2 million barrels per day, while distillate fuel production fell slightly, averaging nearly 4.0 million barrels per day.

Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 915,000 barrels per day.

Gasoline imports were strong while prices were at record highs. Looks like prices may need to head back that direction to attract more imports. That gasoline import number is pretty weak, considering gasoline imports have been running at well over a million barrels per day. I suspect today’s report means gasoline prices will continue their recent climb, after bottoming out a couple of weeks ago. That refinery utilization number is another big story. We have yet to see 92% utilization this summer. You have to go all the way back to 1991 to see summer utilization numbers in this range. Last year's June number was 93%, and it was over 97% in June of 2004 and 2005.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) declined by 0.5 million barrels compared to the previous week. However, at 352.1 million barrels, U.S. crude oil inventories remain well above the upper end of the average range for this time of year. Total motor gasoline inventories fell by 2.3 million barrels last week, and remain below the lower end of the average range.

That is a sharp reversal from previous weeks, in which inventories – buoyed by very strong imports – were heading back toward the lower end of the average range. I would have to check, but I suspect gasoline inventories are back in record low territory again (for this time of year).

Over the last four weeks, motor gasoline demand has averaged over 9.6 million barrels per day, or 1.3 percent above the same period last year.

Record demand in the face of still very high prices. I don’t think people are getting the message that these new, higher prices are unlikely to be temporary. I also get the feeling that people have lost sight of the fact that despite the recent climb in gasoline inventories, they remain well below normal for this time of year.

Here are some excerpts from what OPIS published in their 7/18/07 report:

After showing some weakness earlier this week the gasoline futures market got a boost from some bullish DOE data in the form of a draw of more than 2 million bbl when the market was anticipating a build. DOE analysis shows that the four-week demand average is the highest ever. Also data from the API through the first six months of 2007 painted a strong demand picture as well.

The biggest shock was the draw of 2.3 million bbl from gasoline inventories and as the DOE pointed out most of the draw came from the finished gasoline category, while blending components was only down slightly.

Gasoline got a "triple whammy" of sorts with gasoline output slipping, imports dropping below 1 million b/d and demand moving past the 9.7 million b/d mark.

Demand for gasoline has been relentless most of the summer, according to government data. Last week, demand rose to 9.7 million b/d, and over the last four weeks demand growth is ahead of last year by 1.3%.

I will not be surprised to see spot shortages, as were caused when the recent Coffeyville refinery went down. A large refinery outage in just about any location could lead to shortages relatively quickly. But if we coast through the rest of the summer with no major hurricanes or other problems, the general public may never know just how precarious the situation was this year. To me, the country's gas supply right now is like a homeowner without homeowner's insurance. That's just fine, until you need it.


I posted this on my blog, and Doug MacIntyre, one of the authors of This Week in Petroleum, dropped by and added this:

Robert, I know you know this, but for many of you out there, another way to look at inventories is what we at EIA call Days Supply. If you take the absolute inventory level and divide by the 4-week moving average for demand (or crude inputs in the case of crude oil), you can see how inventories are doing relative to demand. We are now publishing these numbers (saving all of you the hassle of calculating it yourself) at:

Days of Supply [see the 5th tab, second column]

Looking at these numbers you can see that gasoline inventories are very low relative to demand, while distillate fuel inventories are low relative to demand. Absent any major hurricane damage, I don't think we will see "shortages" of gasoline, but we could see prices going back up again next month if the inventory situation doesn't improve. Also, as the text of TWIP pointed out today, while we haven't seen $80 per barrel yet for WTI, we have for other light, sweet crude oils.

Please vote this article up at reddit using this link if you are so inclined:

The authors appreciate your support.

RR: Since I've got an opportunity to post near the top for a change, I'll use it to ask a question:

I see very little discussion about the outlook for propane/LPG. The retail prices I've paid here have gone up over 15% in the past year; my latest refil was for $2.299/gal. That prices are going up is no big surprise, I would expect LPG to correlate broadly with other fossil fuel products. I would appreciate any insights you might have regarding the LPG supply & price outlook, though. I know that there have been some developments come on line in the ME that might help the global supply situation somewhat. It is not clear to me how much North America will benefit directly from that.

Since a large percentage of LPG goes for residential heating, I would expect that those customers would get priority allocation if supplies fall short. Is there any "flex" in the system to increase the LPG supply should there be a supply shortfall, or would that just be a matter of "robbing Peter to pay Paul"?

To WNC Observer

Ahhhh, another student of the wonder fuel, Propane, or LPG!

Let's talk propane, because here at TOD, and anywhere else where people congregate and talk energy and fuels, I have been trying to get information.
It is very hard to find good, objective information about propane.

Let's go with what we know:
=Propane is clean-it and natural gas are the two cleanest of the fossil fuels when it comes to greenhouse gases and other pollutants

=It is portable-at only a few pounds per square inch it stabilizes into a liquid, and requires only a light thinwall tank to be easily transported

=It stores well-Propane is designed to be stored for months in residential stoarage tanks to be used for heating and cooking

=It can be extracted from both oil refining and natural gas production and conditioning, and with very simple refining processes. Thus, as long as there is a fossil fuel industry, there will be propane. Most propane sold in the residential heating and cooking market is extracted from natural gas

=Over the years, Propane has been affordable if not always cheap, and relatively stable in price/supply compared to crude oil, gasoline or even natural gas. Like natural gas, propane has to be stored in bulk (in large underground cavarns to be traded and sold, much as natural gas is) and the pattern of "injection season" (when the propane is stored) followed by extraction season (when it is pulled out and distributed mostly by pipeline, but also by rail and highway transporter (note, this is an area in which propane excels over natural gas, transportability) to the distributor and customer

Now let's go with what we do not seem to be able to easily find out:

-Exactly how is propane traded? Who are the major trading partners?
There is a quote given daily on TOD, using the same Yahoo Finance commodity page used to report oil, gasoline, nat gas, but it gives almost nothing about the nature of trading propane: What size or volume is Propane traded in? How far forward do futures contracts extend? Where are brokers who will help you trade in propane? The whole propane market seems to be something of a "closed club".

Information about the market status of propane is just as hard to get on a reliable basis: How much is in storage? Are we above or below the yearly average? How has demand changed over the years for propane? What percent is used for residential heating, for cooking, for transportation and industrial demand, for camping and grilling?

What is the projected outlook for propane? As you point out, it has gone up in price, but this was after a long period in the doldrums in which it did not seem to move but a few pennies every few months, and then would drop back in to an old trading range.

The major development in the Middle East that affects propane is the rise of a giant natural gas production and processing industry, in the U.A.E in particular. The Asians and Europeans already accept propane as a transportation fuel in a way the Americans never have, so as production has climbed in Asia and the Persian Gulf, so has demand.

There is a considerable world trade in propane, with Hong Kong, Japan and North Korea being buyers and running one of the most well developed short haul operations in the world. The British, Scots and Irish may soon be having to do the same thing, and should get plans up and running to expand their abilty to develop this market as easy and cheap North Sea oil and gas decline.

One interesting investment opportunity I have recently discovered is the propane distribution companies, most often organized as LLP (Limited Liability Partnerships) These are the names you see on the sides of the little propane bobtail trucks all over the country. These are some of the big players:
Amerigas (6.60% divident yield)
FERRELLGAS PARTNERS (8.20% divident yield
Suburban Propane Partners LP (5.20% dividend yield)

These partnerships have a reputation for some juicy dividend payout, and have returned some nice capital appreciation over the last few years to boot!
What would they be worth if fuel prices continue to rise, and pressure continues to increase for "clean" fuel, strategically close to home (enough in a tank in your backyard to last the winter for instance.
The latest development in "exurbia" far out from the city is to develop whole nieghborhoods connected to one central underground propane tank. Each house has a meter, just like with natural gas, and a distribution company keeps the tank supplied, filling it at seasonally favorable prices. It is a potential goldmine for the distribution companies.

One last thought fascinates about the potential of propane: With discussion of wind and solar energy systems in the air, and the constant problem of "variability" hanging over these alternatives, why not use Distributed Generation propane generators to act as the "baseline" or backbone power?
A local generator, right at the site of the wind turbine or solar generation plant (be it PV or concentrating mirror) would have a propane tank on site, and be able to kick in and provide baseline power when and if needed in periods of low wind/low sun. the propane could also be used to provide process heat if this were need in a CHP (Combined Heat and Power) arrangement.

It gets better. At sites where methane recapture was possible (farm, sewer and waste processing plants, landfills, even large human occupied installations such as prisons, military bases or hotels, etc. the waste stream could be used to provide methane, which would then run in the same engines used by the propane. The two fuels are (methane and propane) are very close in characteristics, and only a bit of tuning in the control of the fuel system of the engine should make the engines bi-fuel, methane/propane.

Here on TOD we have been discussing the recent NPC (National Petroleum Council) Report and it's implications. Above are the kinds of developments that will occur in what will be an absolutely imperative effort (you could call it a last ditch survival effort) to make our energy system more flexible, more efficient, and more strategically "case hardened" i.e., robust and diverse, able to take wild price swings, supply disruptions, and rapid technical changes. Millionaires, even a few billionaires will be made. Others will be broken and sent to poverty in the wave of changes coming. And everyone will be responsible for their own self education. There are no "energy astute" schools or degrees that will assure you success. We seem to be rapidly entering one of "those" eras, where there will only be two kinds of firms, two kinds of energy street fighters: The quick and the dead.

And yes, Robert Rapier, if you know anything about where to get good info on propane, by all means help us out! :-)

Roger Conner Jr.
Remember, we are only one cubic mile from freedom

When I was in a refinery, I regularly interacted with our propane/butane traders (usually managing butane supplies for gasoline blending). At present, I am pretty far out of the loop on propane, and can't give good answers to those questions. I know that refineries produce a lot of propane, that can be exported for sale or used internally depending on prices of various fuel options.

I grew up on propane gas. We had a big tank in the yard. I liked to play on it when I was a kid. We used it for cooking and the bathroom heaters (no central heating, though; we had a wood stove). My Dad also ran his pickup on propane.

Robert I have to reply to that one....when I was a kid, we played on the big silver tank in the was in the shade in midafternoon and stayed nice and cool! The first vehicle I ever saw that ran on propane was a farm tractor, when I was high school age, and belonged to the local propane gas distributor. He ran his trucks and the tractors on it right through the 1970's, and he would advise my dad to go ahead and fill the tank in the yard, "it will put you well past Christmas, and you will KNOW what the heat cost you", he would say....I never have forgotten that "safety net" approach to having the fuel bought and paid for before the weather got bad, the hurricanes hit or still makes sense to me.

Roger Conner Jr
Remember, we are only one cubic mile from freedom

Hello Boffins of Propane,

I've found propane varies in Btu content from place to place, most radically in Mexico where the stuff really pumps iron. Is there any rating system for the stuff that could be used to make critical comment to smarmy propane attendant guys when they sneer at your rusted out tank. Like "that low ,eh, I could keep that stuff in a mason jar with out sweating" :)

A distributed generation system using CHP as backup has been a fond dream of mine. With more people keeping animals and digesting all available biological waste. I remember reading somewhere that hydrogen can be mixed with natural gas up to about 20% H2 and its properties remain similar to that of the original gas, this could have good potential for energy storage.

Since hopefully the CHP would only kick in for a fairly small amount of time, enough gas will be collected during the times when it isnt running and the power is coming from your wind, solar, tidal, wave, coal and nuke. Technology of micro turbines is improving, as are storage technologies all of these will be important in a future distributed grid system. CC will make maintaining a top down grid system very difficult and leave it very vulnerable to power losses in certain areas.

Demand side management will get big also bring on a NegaWatts trading market!

The site below provides a chart of NYMEX propane

I believe the contracts are for 42000 gal, and the price quotes I believe are wholesale per gal. (which is around half of retail prices, typically)

A couple other good US data sites for propane prices that I have found:

"The two fuels are (methane and propane) are very close in characteristics, and only a bit of tuning in the control of the fuel system of the engine should make the engines bi-fuel, methane/propane."

- well it's a bit more difficult than that, as the two fuels require different size nozzles in the burner. That is due to their rather different density, propane being much denser (as a gas at atmospheric pressure) thus needing a smaller nozzle for injection into the air stream for burning. I suppose one could build engines or burners with dual nozzle systems, but most existing devices are built for one fuel or the other and need to be taken apart to make the switch.

Regarding the varying energy content, I believe that in warm climates the "gas" that comes in "bottles" (widely used for cooking) is butane (4 carbon atoms in a molecule), not propane (3 carbons). The term "LPG" (liquid petroleum gas?) seems to be generic, i.e. can apply to propane or butane. Butane is denser and needs even less pressure to maintain in a liquid form (e.g., plastic cigarette lighters). But in cold climates an outdoor tank of butane would not flow (gasify) in the winter, thus the use of propane. (Butane-burning camping stoves have the same problem if you do winter camping.) In very cold climates, where the temperature plunges to -40 or so (F or C - they meet at -40!) even propane can stop flowing, and one needs a small electric heater (a light bulb will do) under the propane tank.

Thanks for the info on propane. I've been a long-time investor and customer of Ferrellgas which is headquartered nearby. Since there are also lots of cows in this part of the country, perhaps they could diversify into methane.

Only $2.30? I topped of my tank last month and they charged me an eye-popping $2.70 per gallon. This was higher than the average here in Vermont, which was (in early June) about $2.40 as best as I can tell - about the same as heating oil which holds a LOT more BTUs in a gallon. I wonder why gasoline prices are advertised in big signs while propane prices are hush-hush. They only disclose the price to "current customers", and apparently the price differs between customers of the same dealer: those that use more pay less per unit. I am unhappy that I don't get a discount for renting a large (500-gallon) tank: even though I don't use a lot of gallons, they deliver 200+ gallons at a time and only need to do it twice a year. (I get most of my heat from firewood.) The rent-a-tank scheme (unlike heating oil tanks that are owned by the residents) keeps one chained to a specific dealer. Fossil Fuel Feudalism.

Guess I should consider myself lucky? Summer fill price here in Minnesota for me is $1.53 gallon propane ($1.67/100k BTU - 1.53/91600x100000) and I just contracted for my winter supplied propane at $1.63 (cash price paid in 10 days or less). Price just a couple years ago was $0.55-0.58 per gallon (And my fixed retirement income is still the same as it was back then - sigh!)
I got 4 1000 gallon tanks years ago before contracting to keep from getting gouged by the high prices in the middle of winter and to make sure I have enough to last all winter in an emergency. [I used to run a small business in the workshop before I retired 3 years ago]
If I heated the house and workshop all winter I can burn 5000-6000 gallons of propane - just not on my retirement income.
I have a corn/pellet stove in the house and a wood stove in the workshop.
I graphed out the cost per 100,000 BTU for different prices of different fuels and found that at the current prices of propane and wood pellets ($3.88/40# bag)($1.59/100k BTU - 3.88/{8700 BTU per# x40}x100000/.70) with the propane burned in a high effiecncy stove and the pellets burned in a 70% efficient stove, wood pellets are only slightly cheaper than propane - And I have to haul and stack the bags of wood pellets (6 pallets of 60 bags of 40# ea = 14,400 pounds) and clean and maintain the stove - Probably 10 cents per hour for my (sometimes back breaking) labor.
Heat pumps graph out as the cheapest heat source, but I just had a contractor out and was told my heating ducts are too small to go with significant amounts of geothermal heating. The geothermal heating would have had a payback by my calculations of less than 2 years based upon the rough estimates I was given for installing a new geothermal heating system. (Lower heated air temp from geothermal requires larger volume of air movement to do the same heating job) Old farm houses are a pain sometimes! The ducts are still the same ones from the old gravity flow corncob fired furnace the house originally had.
Speaking of which, my old farm house has exterior structural walls of clay tile (some courses running vertical and some horizontal) with brick facing on the outside and lathe & plaster on the inside. The inside has beautiful old all oak trim that I would hate to lose by insulating the inside of the house (and lose the thermal mass benefits of the masonry construction) and I'd hate to cover up the beautiful (fireproof) brick exterior. Anybody know of a thin clear high insulation value material I could spray over the outside of my energy hog house to cut my heating bill????

I have tried everything to add my "Word Table" files to list all my figures for calculating my graph (on paper), but have not figured any way to get the figures to stay lined up. If anyone can tell me how to do it, I will be glad to post the relavant information.

Part of the reason I raised the propane question is that I recently realized that I've cut back my driving to the point where I am now WAY MORE dependent upon propane supplies than I am upon gasoline, and far more vulnerable to propane price increases. I was thinking in terms of trading out my cars for more fuel efficient models, but I am thinking now that I had better defer that and do a lot more on household energy efficiency first.

A tankless propane water heater installed by the end of this year gets you a $300 tax credit (combined all tax credits $500 limit).

Best Hopes for Energy Efficiency,


I know, seriously considered it a few years ago, but had problems finding a place to put it where I could both tie in to existing plumbing and have a pathway to vent and be OK with code. I got a very high efficiency propane tank model instead with a powered exhaust vent, only way I could go.

Should work for a lot of people, though.

My plan now is to install solar H2O heating panels as soon as I can swing it. The propane tank would then become a booster/backup tank.

I'll be using that tax credit on other things, though.

Best I can tell propane prices do tend to vary regionally as much or more than gasoline prices. Somewhat similar dynamics, I suppose.

Thanks for the update Robert.

Couldn't agree more on the demand and days of supply comments.

Last week there was a post about GLOBAL bunker fuel supplies declining, and the a week or so before that there was discussion on distillates being displaced to make more gasoline. (sorry don't have the links)

Have you heard or see any indications of this being true? US distillates seem to be steady.

Have not heard that, but there have been on and off concerns that we are not in great shape with heating oil heading right now. I have read some heating oil concerns that reminded of the concerns that were starting to arise about the gasoline markets back in February. Those concerns turned out to be well-founded.

Robert Rapier, you said,
" I have read some heating oil concerns that reminded of the concerns that were starting to arise about the gasoline markets back in February. Those concerns turned out to be well-founded."

In the case of heating oil, I would assume the weather will mean EVERYTHING.
A mild winter, we get by o.k., a bad one could spell very bad news. As has been reported here on TOD, natural gas would be a concern in a really hard winter as well, as the much needed and promised expansion of nat gas transport, pipeline and and LNG projects is now far behind.

Up the string, near the top, WNC Observer asks about propane, and I discussed this issue in reply to him. All this to make a point:

It is ASTOUNDING to me that people still use heating oil for residential heat!
Right here in my home state of Kentucky, and of course much of the rest of the South, you would be surprised how many people heat with kerosene!
The price is staggering, in the winter over $3.00, sometimes $3.50 per gallon. Absolutely amazing, It would pay the propane and nat gas distributors to finance the heating and cooking appliences to get off heating oil and kerosene. Even if they charged 10% interest, maybe a bit more, the customer would still save money leaving heating oil and kerosene heaters behind.

For the well off in America, it is hard to understand how the poor still must live in America, how much waste that situation creates, and how primitive our energy delivery and use system still is, often unchanged since the 1940's, even in parts of major U.S. cities.

Roger Conner Jr.
Remember, we are only one cubic mile from freedom

Re heating oil price.
Well ....
Last year I spent ~400 USgallon heating oil at 5.62USD/gallon....
But 2/3 is taxes, making our social system bounce.

Why do I use heating oil? Well,I live in the cold Temperate zone of Europe. The nearest natural gas line is 4 miles away and the supplier has no plans to lay pipes out in the open country, and I am too lazy to buy firewood or wood pellets. This could change, naturally. But in my country there is only firewood or biomass enough for a small fraction of the homes anyway, so instead I am reducing my consumption by insulation, air tightening, trible glazed windows, Insulated doors, solar hot water panels for hot water/room heat. When I have finished I will still use 150-200 Gallon heating oil annually - or similar firewood for approx 1700 ft2 at winter temperatures around freezing. My oil pan is rated 94% effective.
So that is why I use heating oil :-)
Kind regards/And

Well here in Vermont the per-BTU price of heating oil is much lower than that of propane, and natural gas is not available in most locations (although the pipeline network is slowly growing, just in time for a declining NG supply). When I installed a central heating system a few years ago (the original house only had electric heat + wood stove) I debated oil vs propane and it was a tough choice. I already had propane for cooking and hot water, and it burns cleaner, plus I use firewood, so propane won over oil despite the price.

Fortunately, heating oil does not loom quite so large in the scheme of things as it used to. During the energy crisis days in the 70s, a much higher percentage of homes were heated by oil. Those were older, poorly insulated homes, too, mostly in the cold northeast & midwest, and the climate was going through an exceptionally cold cycle as well. Whether or not there would be sufficient heating oil inventories each winter was a very big worry back then.

This time around I suspect that our worries won't just be focused on one particular energy source, but on all of them.

Robert or anyone for that matter. Can you comment on how we are able to maintain such high imports even with fairly low wholesale gasoline prices ?

Its interesting that their is enough refining capacity in the world that we seem to be able to get all the imports we ask for and that we can get them at the price we are paying.

I thought we would get them but only at a lot higher price so I'm a bit perplexed.

I don't have a full subscription to Platts, but it said about two weeks ago or so, European gasoline was being pruchased for import at about $2.35 when the futures price was about $2.20.

However I don't have an explanation as to why that happened.

Can you comment on how we are able to maintain such high imports even with fairly low wholesale gasoline prices ?

Europe has excess gasoline production, but note that imports into the U.S. have fallen sharply as prices have fallen. There will always been some suppliers putting product here simply because they have an excess, but when prices get high you will see suppliers diverting supplies from lower-paying markets to put the product here. I suspect that as prices have fallen in the U.S., product has started to flow back into those other markets.

don't forget term business as well. I'm way out of date but Spanish refiners used to sell 2-3 cargos/month of US grades on a term basis off US pricing. So if that continued, they are locked into supply. Others did similar business, especially the Venz.

And "low" is relative. These gas cracks are still fine. With crude at $76-79 I wouldn't expect to see run cuts until about $85 on gasoline or down around $2.00. And then only if heat is weak as well.

So how long are these term contracts ? It seems just looking at the various prices does not tell you much so it makes sense that a lot of the gasoline imported is sold on longer term contracts.

I guess I naively assumed with us importing so much gasoline the spot price of imports would be a major factor and its quite a bit higher in general then the local prices.

Either the longer term contracts have better pricing or they take a relative loss on imported gasoline. Basically if you have to import it seems to be a blow to the profit margins.

If they are taking a bit of a loss then it makes sense to only import what you have to import.

I had expected prices to increase until we drew enough imports to get us well outside the danger zone but thats not happening. Which I find surprising.

It seems impossible to look at the various market prices and understand how the cost of imports play into the overall price.

they were annual deals lasting 12 months. but again, I'm years out of date.

And no one is "taking a loss" at the moment. Making less is not a loss. Refining profits are still huge--double to triple what refiners accepted in the 1990s.

as for imports flooding in to take care of our shortfall. keep in mind, gasoline doesn't flow without a buyer(speculators included). Just because stocks are low doesn't mean there are aggressive buyes at any price just to stock up. Just the opposite is indicated by the price action. Buyers are not panicked over the stock levels.

it's not impossible to look at the prices and understand. The market just doesn't fit your model.

whats up with the crash in gasoline futures prices? they were up today but went from $2.35 to $2.07 in last 10 sessions...? with crude making new highs.. Crack getting cracked...

No idea. But, I think prices will trend higher from here. We are still very low on gasoline inventories, and I think there is a better chance for an event to cause prices to run up (hurricane, refinery outage, surprise drop in inventories) than for prices to crash over the next couple of months (huge inventory builds, large spike in imports).

But please, don't take that as financial advice. :-)

Hello R-squared,

Too early to tell if it will have any impact, but from ACCUWEATHER:
The first one is located near 68 west and south of 22 north. It is moving west-northwestward at 15-20 knots. This wave continues to look better organized and is causing heavy thunderstorms over the Leeward and Virgin Islands. In addition, surface pressures have fallen a few millibars over the past 24 hours in the wake of the wave across the Lesser Antilles and Puerto Rico. There is dry air in its path across the central Caribbean, which would stifle development, but winds aloft are favorable for development as an upper trough of low pressure backs westward across the northwest Caribbean and an anticyclone continues to build in the upper atmosphere. Therefore, this wave may have some chance for development. Moisture from this tropical wave could reach south Florida early next week, and perhaps the Texas coast later next week.
So maybe, or maybe not a big deal, but I just wanted to give the early-bird warning before I hit the hay tonight. =)

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

A little far west for hurricane formation, isn't it? (Not impossible, I suppose, just unusual.)

Local weather guys, who are pretty good, discount this one developing into anything that would go into the Gulf or cause much of a problem anywhere.

Best Hopes for continued upper level shear,


my guess is speculators are letting go of August futures before month end as hurricane season is a fizzle so far this year. While we have lowish inventories, there haven't been any dislocations leading to sharp price spikes. So the nervous longs are taking what they can get. This is typical of hoarding situations. People down the supply chain stocked up in the spring over and above real needs. Now they are not needing to buy aggressively and prices fade.

Also remember what a blood bath there was in gasoline late last July to about Aug 10th. Traders tend to fight the last war.

at $2.17/gal = $91/bbl vs WTI at $76 or Brent a bit higher still gives a refiner a gasoline crack of $10-15/bbl. That's huge (just not as huge as $30+ this spring). So even with freight netted out, a European refiner with spare capacity will be running full to make US mogas.

From the news I've seen, they are now predicting four tropical storm strikes on the US, two of which will be hurricanes. Now granted that Florida is usually in the firing line, but those are fairly good odds for something heading into the gulf, and therefore threatening either Texas or Louisiana.

As such, with the supply issues, and with oil already at the $77 a barrel level (for Brent), what is your assessment of the maximum oil price level before year's end?

a) $70-$80, nothing will happen
b) $80-$90, market will take it in its stride
c) $90-$100, market reacts typically to a threat
d) $100-$110, Iran's still a target
e) $110+, armageddon out of here

e) $110+, armageddon out of here

There is also the possibility of $110+, oil prices flat, dolar devalued, no armagedon.

Robert, what’s your comment on Heating Oil? This article yesterday at painted a bleak picture:

Heating oil inventories are down 43 per cent from last year's level while total distillates are 8.3 per cent below 2006 levels.

OPIS started sounding warnings on this about a month ago. Lots of time between now and then, but it doesn't look good at the moment. Like someone else said: Mild winter, and maybe no problem.

the total is what's important. Heating oil was/is high sulfur and as such is no longer usable as road diesel. But you can substitute road diesel for heat.

My guess is stocks are being held in summer as desulphurized diesel rather than heat.

overall stock levels look pretty nominal to me.

Sorry for the spam, but this morning Brent finally broke above 80$ per barrel.

Check the latest prices target=_blank>here.

Is $80 supposed to mean something?

Anyway, that's the price of "Brent blend" at Cushing, which includes shipping etc, the real Brent price on the IPE is more like $77.

I guess you pick whichever figure you like depending on the point you are trying to make.

The Brent blend is what the company that sells me petrol buys. The lag from the blend to “real” Brent is usually less than a dollar (check prices target=_blank>here).

What 80$ means? 80 = 40 x 2 = 20 x 4 = 10 x 8.

Was he trying to make a point ? $80 is $80. Sorry, Bob; I don't understand YOUR point.

I was following the price since early morning, and I also wanted to know how the media would react. Both Finnish and British media ignored it.


Nice summary. Thanks for posting.

A naive question about refinery utilization. I know that there have been some refinery problems (fires, floods, etc.) but for the other refineries what is the fundamental reason that utilization is so low? You highlight this in your summary but offer no explanation even though you appear to be surprised that it hasn't increased the last few months.

Which option is the best explanation?
1) The crude in inventory is not light and sweet enough to run at +92% in the U.S refineries.
2) Refineries have been running near 90% for years and have constant maintenance issues keeping the aggregate utilization low for lots of reasons unreported.
3) Refineries are doing planned upgrades to increase capacity or handle more difficult crude in the future.
4) Price is not high enough yet to run at +92% capacity.
5) We are too late into the summer for refineries to want to build stock of summer gas just in time to have to switch to winter gas.
6) Other or combination.

Curious to get yours and others hypotheses on why consistent $3.00 gas is not enough incentive to crank up utilization. Based on the crude inventory, I am eliminating the issue of not enough raw material to run through the refineries.

I just lost a very long response to you because I lost my connection as I posted. So, briefly, 2 BP refineries are limping, and Coffeyville is down. Coffeyville is listed at the 59th largest U.S. refinery:

But the amounts to 0.6% of total refining capacity. All of these things add up. There aren't any refiners out there who aren't running as hard as they can - unless they are just not able to. Margins are too good not to run hard.

But I am surprised that 2 years after Katrina, we have yet to reach pre-Katrina utilization numbers. And remember, gasoline margins were much lower then. So there is even more incentive now to run hard.


I am owner and gen mgr of a brokering company that deals both domestically and internationally. Propane is heavily traded world wide every day. It is an active market in terms of volume traded and market participants. I joined TOD 6 weeks ago and have made it a point to read every tid bit I check in every day on this web site and associated web sights. I have been in the oil market for 27 years and have commercial experience in many parts of the oil barrel. The past 10 years I have primarily focused on propane. I have been impressed by the amount of anylitical brain power which can be accessed via this web sight. For the most part I only read and rarely comment. But I may offer some insight into the commercial side of the propane market. Supplies of propane for the upcoming winter in the USA look to be building at a slower than normal rate. There has been a real lack of international waterbourne imports this year primarily due to the fact that other areas of the world have been paying higher prices than the usa and thus attracting more product. The far east has been been price firm through the 1st half of the year and thus little incremental propane has made its way to the USA. The European market is traditionally long during the second and possibly even the third quarter of the year but this year has seen a bit of a change in that pattern. It seems that economic conditions in the rest of the world are such that demand for propane has been quite high this year. There are diverse reasons but the main reason is that petrochemical companies can use many different feed stocks but they generally use propane or naphtha. naphtha has been very expensive this year and so pet chems have been and are cracking very high volumes of propane world wide. Naphtha was very firm from last Oct or Nov due to a couple of different factors. One was that there was a fire at the worlds largest refinery in India. they usually export quite a bit of naphtha and other clean products in the asia market but because of the fire they could not or did not. Naphtha has also become increasingly improtant to the world wide gasoline blending pool and as mogas consumption/demand increases in conjunction with the stricter mogas specifications, naphtha has become more linked to the value of motorgasoline. years ago the different markets around the world were not as finely tuned as they are today. I mean that price moves in one market tend to have a much more dramatic effect on the price moves in the competing markets. Price competition in a finely balanced market. Any disruption, even minor, makes for a relatively violent price move. Take for example the earthquake in japan which has closed the world`s largets nuke plant. the implication is that the world demand has just increased by something like 100,000 bbls a day as the shortfall in domestic elec production will be made up by fossil fuel thermo plants. this has already had a dramatic effect on the price of heavy fuels and LNG in the eastern markets. This will in turn have an effect on related products...i.e. the whole barrel. gotta run. back to the spot market of propane...

Great to have a market participant participate in the discussions at tod. Hope you continue to take the time to post.

I'm glad your aware of the correlations. This effect of increasing correlations between markets that used to be insulated by ample supplies is the trigger in my opinion for shortages. And shortages not price is what I think will do the most damage post peak.

The problem is once the markets get highly correlated like this it just take one bad event to cause a cascade of disruptions that will take forever to work out of the system if ever. The knee jerk response in the face of shortages is to hoard which makes the problem worse.

In the US the gasoline market is one hurricane away from serious problems and if you consider the correlation you laid out so well the world is one hurricane away from serious problems.

Given your line of work it would be cool to here more about instances of correlations that tied together events around the globe. I expected this and its good to see some confirmation since in my opinion our real problems will actually stem from a correlated set of events.

Not that I'm the one to scold but if you use a double blank line you will get basic paragraph formatting.

Thanks... as mentioned i am new to this so i am unsure of proper etiquette.

I have posted a useful web link to the EIA in reference to propane.

The EIA stats are to be taken with a grain of salt. Once they get a response from 90 pct of the participants, they close the door on weekly report..90 pct of parcipiants does not mean 90 pct of the volume. It means 90 pct of the number of required companies (big and small).

A view from many different angles indicates that propane stocks are not building at the rate that they need to in order to meet a safe and comfortable level for winter. Propane prices in the usa are approx 121 cents for august and 123 cents for 4th quarter. By most measures the price is too low to attract sufficient imports to bolster the stock build that must take place before the end of the 3rd quarter.

Hmm propane also. Do you have answer why we seem to be going to minimal stock levels. Gasoline seems to be in the same boat. In fact outside of crude the general trend seems to be to keep minimal and maybe dangerously minimal stocks.

What I don't quite understand is why ?

stocks are expensive. at higher prices they are even more expensive. carrying costs -- storage fees, interest etc really add up.

You keep putting the cart before the horse.

It's useful to look at US crude oil inventories, both in absolute numbers and in terms of Days of Supply, over a longer time period, back to the Eighties, when the industry routinely kept higher absolute inventories, but especially higher Days of Supply inventories--routinely in the 28 to 30 day range, versus about 22-23 days currently.

It's also interesting to look at commercial crude oil inventories divided by daily imports, about 56 days in July, 1990 versus about 34 days in July, 2007. So, we are obviously far more exposed to crude oil import disruptions now--of course except for the SPR.

My take on the US crude oil inventory situation is that the industry has basically gone to a just in time system, because they have the SPR as a backup against import disruptions.

In any case, spot light, sweet crude oil prices around the world are pretty interesting, several close to or above $80, with Bonny Light knocking on $82 (on the upstream website).

SPR reasoning makes a LOT of sense. But this does not explain propane and other stocks since the SPR is just crude.

I guess going just in time in general and accepting the occasional shortage is probably the best approach. Its worked out well in other industries. I find it irritating simply because stuff is always out of stock.

Hmm except that crude is the one thing we are overstocked on.
Holding cost or not. In fact the holding cost argument seems weak since we seem determined to buy as much crude as we can.

So back to square one the current situation makes no sense to me. Next we are talking about a lot of different companies how can they all decided to go with just in time inventories at the same time ? Doubtful.



I want to second the thank you notices for your interesting and informative posts. Indeed, someone close to the propane/LPG markets is very welcome and helpful to us here, I think you can see that this is something of a "blindspot" for a lot of folks, even some of us who pride ourselves on being very energy aware.

I am also interested in storage costs as related to LPG, and whether there is a viable market in lease/rental storage tank space. I know that may sound like a dumb post as such a thing may not even exist in the real world, but as I said, the functioning of the LPG market, from storage and transport to financing is a black art to some of us here (I speak for myself!) and anything we can be taught will be appreciatated.

Thanks again for taking the time to help us out in our continuing education :-)
By the way, being a relative newcomer, what do you think of this whole "peak" thing, and LPG's place in the world down the backside of the peak? Just curious....

Roger Conner Jr.
Remember, we are only one cubic mile from freedom

Propane is kept in salt dome storage caverns and moved by pipeline and barge. Check out Enterprise Products and MAPCO.
Since propane is made fromoil and condensate, its one of the gases considered Liquified Petroleum Gas (LPG). Bob Ebersole

Are their any futures mavens out there who can explain the extreme backwardization we are currently seeing in the CL market this week?
I always thought this represented acute shortages, but everything I've read shows record above ground crude supplies at present. Won't this pattern cause warehousers to disgourge their stocks and pressure the spot price? In addition, the intermediate contracts (~08-09) are actually down in absolute terms. I read this as a complete evaporation of the embedded risk premium for the mid-term, though to me it seem the risk will be higher in that timeframe if warehouse stocks diminish today and are less able to smooth flows in the future. It seems like a rolling near short with a intermediate long is a screaming good buy, assuming you have large cash reserve to defend the position and eat the short term negative rolling interest rate. Any posted or emailed to iusom"we"(remove we)at comments would be appreciated.

sent you an e mail by Verleger... might make some sense. to me, i prefer to know my down side risk. so feel best for my way of thinking to buy an out of the money call way in the future.


I would just be guessing, but given the very serious disruptions in the leveraged speculative community at the moment, it is quite possible that losses in one area (e.g. mortgage-backed securities) might cause deleveraging in other areas like stocks and commodities as firms struggle to raise cash. This might put downward pressure on the longer dated contracts that have been hit, and would return us to the backwardization that would be normal in a rising market.

If you look at total petroleum inventories in terms of days of supply we are at very low levels; so with respect to the trade you mentioned, I would be worried about a price spike in the near months this fall and winter (during the hurricaine/heating season) that dramatically increases the backwardization with the result that you have to continually roll your short at a loss.

(Legal disclaimer) I'm not an expert at this kind of trade and this is just my opinion. : )

Nice to see those long dated contracts cheap again on a relative basis! Looks like a buying opportunity. 2012 crude for $71! Fill'er up!

Definitely not a maven, but will try my best.

From COT report there is a record large speculators' net long position (accordingly, the commercials' net short position for last week was the biggest ever). This usually happens at price tops.

The record spec position is concentrated in the near months, i.e. September with a bit more in October.

The arbitrage strategy you mention (warehousers disgourging their stocks today) does not work because specs (usually funds) do not take physical delivery.

So specs' buying is pushing up the near contracts but commercials (those who handle the real stuff) have a different view: knowing that the funds usually reverse course at such extremes, they have positioned themselves for the coming price decline. They might also see a recession coming that will ease up demand.

The net short position of the commercials as a percentage of open interst, not an absolute value, isn't that high. It was much higher in March of 2004 just before the price exploded.

What strikes me is the fact that open interest has more than doubled in just a few years.

Thanks for the new "this week in petroleum". I like to get such recent data input. One question though: do you plan on updating the graphs you used to put into the report? I think, those give a far better overview of the situation for everyone who is not so familiar with the numbers.

Yeah, the graphs paint a good picture and I like to include them. I am just squeezed for time for the next week or so. Maybe next time around I will put some graphs in. I just got an e-mail from a reader who had some very nice graphs of heating oil stocks. I would like to see those posted as well.

Presume that was me! Have sent the Word doc to Prof. Goose (at the theoildrum at google dot com) to ask for help in getting the graphs up, either as a response in your thread or seperately if he thinks it worthy. Is there anyone else I should ask for help?


I put this at the tail of Rebrandt's last, but didn't get a reply, so I'm re-asking - it's more pertinant here anyway, as we're talking stocks rather than supply...

On page 1 of -- or some other link if one's prepared to pay for the not-out-of-date-version -- we get:

Total OECD industry inventories ... forward cover stayed flat at 54 days...

But more interesting is the graph at he bottom of page 29 of the PDF, which shows that 'flat' in this case is a result of rounding (top of p28), and actually, OECD total stocks in terms of forward-supply have been declining linearly for the first few months of 2007, contrary to the average historic trend.

In the context of Export Lands, do total OECD stocks deserve a bit more coverage here? (and can anyone let us know if the trend continues in the most recent [paid] version of the IEA report?)

Speaking of creeping prices:

Upstream shows - Brent Blend busing 80! 80.13 at this moment.

3 crudes above 80 now...Brent, Tapis and Bonny Light. With Forties at 79.93 and Louisana sweet at 78.15.

Bloomberg shows DATED Brent at 79.30 at the moment...but from watching these last couple weeks...seems to play catch up with Upstream's numbers the next day. (still don't know why)

The links:

Sure looks like a double Yergin day to me!!

For the oil trader types, I posted a "Red Alert" on oil prices on or about 6/28/07, when CNBC reported that Yergin was predicting $60 oil next year. Based on prior performance, I suggested that $120 oil was likely within a year or so.