Another gentle cough!
Posted by Heading Out on October 21, 2005 - 5:58pm
While the price of crude drops, because of increased stocks, I don't suppose that folk consider that we still don't have the refineries to do the conversion, and that there is this little additional problem coming along. Consider distillate production.
Now you have again to bear in mind that is is a running four week average, but still.
And I suppose that I do not see demand "falling off a cliff" given that the drop in current prices, that I pointed to yesterday is actually currently increasing demand. However, as noted in Bloomberg
"We're still in shoulder season,'' Sieminski said. "Gasoline season is over and heating demand has yet to pick up." Regular gasoline averaged nationwide fell 1.4 cents to $2.709 a gallon yesterday. Prices are down 11 percent from the record $3.057 a gallon on Sept. 2, according to the AAA, the nation's largest motoring organization. Pump prices are 34 percent higher than a year ago. U.S. gasoline demand normally declines after the Labor Day holiday in early September. Global fuel use peaks during the Northern Hemisphere winter. Heating oil consumption jumps as temperatures plunge and furnaces are stoked in Europe, North America and eastern Asia. Total petroleum supplied, a measure of demand, averaged 20 2million barrels a day during the past four weeks, 3.2 percent less than a year earlier, the department said. "The market's mesmerized by what appear to be low demand numbers," Sieminski said. "Product supplied is not the same as demand, since it measures what is leaving refineries, not what's being consumed. During the next three weeks we will find out if there really was any demand destruction."In which regard, it was by accident we found that one of the local gas stations has been out of diesel for over a week.
It is interesting that he used the "demand destruction" phrase, since it was the need for just such a happening, that is beginning to appear in European comments. First there was the Guardian story about the possibility of a three-day work week this winter.
A cold snap this winter will cause an energy crisis that will force industry onto short-term working for the first time since the three-day week of the 1970s, the head of Britain's leading employers' organisation warned last night. "They have accused us of crying wolf. Well now, it's five to midnight. If it is another mild winter, that's fine, but if it's a hard winter there won't be sufficient capacity for business and to keep pensioners warm. It will back to the days of the three- and four-day weeks."Today however one of the suppliers came to the rescue
Centrica's gas storage business said yesterday that it would increase supplies this winter as the UK faces a squeeze caused by rising demand and diminishing North Sea production. It said it would make more gas available from its Rough facility, the UK's biggest gas storage unit, sufficient to supply an extra 65,000 homes or keep a gas fired power station running throughout the winter.And while Daniel Yergin is again quoted by the Washington Post
Concrete evidence was emerging that oil at or near $70 a barrel -- a level reached this summer -- had taken a toll on energy consumption, according to Daniel Yergin, a leading energy expert. "I suspect demand is on a different track now... I think globally," the chairman of Cambridge Energy Research Associates told Reuters.this perhaps goes against the uptick that was shown in demand by the EIA. But the article goes on to again bring up the possible need for demand destruction which Dr Yergin has been wandering around saying would not be necessary in "our land of superabundant fuel".
But some traders and analysts have questioned the accuracy of the demand figures, and add that a colder-than-normal winter could stoke up enough heating fuel consumption to sap the supply surplus. "By first snow we expect extremely low stocks of heating oil and natural gas, with major pressure on refineries that need to (have maintenance)," said Deutsche Bank. "The fact is, some demand destruction is needed to balance this market." Dealers appeared to disregard a disruption in Nigerian supplies. A strike by unions has suspended some 240,000 barrels per day (bpd) of Brass River crude. Adding to bearish sentiment, the International Energy Agency agreed on Thursday to allow any unplaced oil from its initial emergency reserves release to remain available to the market.
“Men argue; nature acts.”
—Voltaire
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I for one welcome our new three- and four-day work week overlords!!
Seriously, I cannot imagine that there has been any serious demand destruction, apart from that destroyed by Katrina and Rita locally to the gulf coast states themselves.
Otherwise my gut feeling is that we will see massive overshoot pricing-wise in the next three or four weeks as dealers realize that the abnormally high stock numbers from this week were either a fluke or else wishful thinking on the part of those reporting the numbers. I think within a month we will test the $70.85 limit hit during Katrina's landfall.
As many of us know, peak oil will not only result in higher prices generally, but will result in higher "noise" in the signal, such as the "surprising" drop in prices this week.
Oct 26, 2004 $55.17 (new record)
...
Dec 10, 2004 $40.71
The price spiked at 55.17 on October, 26 establishing a new record and then crashed down soon after Bush was reelected on November, 1st. Prices went down for almost 40 days until December, 10 reaching 40.71 (-26% from the previous record!).
My guess is that this a transition period between the driving season and the winter where heating oil demand should pick up in mid December. I'm expecting a -30% fall in oil prices reaching maybe the lower $50 if last year scenario repeat itself.
This is a perfectly timed post. MW (Mike Watkins), Stuart, Rick, me and others have all posted/commented recently that decreased demand after Labor Day and the hurricanes has leveled off. At one point, I asked "how in hell could demand be expected (by the market) to fall off if the market kept lowering the price?" MW has published the EIA numbers, Stuart has just made a convincing case that Americans will drive more and more no matter what happens. You are talking about the excrement hitting the air conditioner (WTSHTF) when this entirely artificial supply & demand gasoline situation ends. I can not see what will happen to avert prices going up, maybe a lot. "Demand destruction is needed to balance the market".
When Yergin opines that "I suspect demand is on a different track now... I think globally...", one suspects that this statement was made shortly after the drugs kicked in. Well, we're about to find out, though in the World According to Stuart (and Kunstler) -- a worldview I totally agree with, this demand drop will not be significant.
Gasoline demand fell 57,000 barrels a day to an average 8.8 million barrels a day, the report showed. Consumption has averaged 8.8 million barrels a day during the past four weeks, the department said.
The US Government is good enough to tell us "demand" down to the thousandth decimal place (with 8.8 million bbls as a benchmark).
Take your own informal poll. Have you "saved" any gas/diesel by any measure? My bypass was as crowdwd as ever.
Just as long as it's poor people and not me.
I guess I ought to add that there does seem to be a sense that people want to get rid of those big SUVs, but the resale prices have cratered, so they are hard to get rid of. With declining gas prices, I suppose some folks with these things think that they just need to tough it out a little more. That trend is going to end quite soon, I think.
This should have been done by energy policy immediately after 9/11, but at least it's a start.
Hmmm...let's say that $3 per gallon gasoline is the trigger point for making SUV owners and owner-wanna-bes re-think their choice.
What's next on the scale of gasoline usage -- smaller SUVs? Pick-ups? Minivans? And what might be a relevant price point at which those owners start re-thinking? $4?
Anybody have any thought-provoking data?
Here in a small town in Lithuania, I have begun to notice the occasional cross-over or small SUV parked in the typical 10- or 12-vehicle parking lot. $4 per gallon gasoline, roughly. And yet those larger vehicles are appearing...
it very much looks as though the refiners have decided to crank out gasoline to keep everyone off their backs for the time being and hope the winter isn't too bad, or we can import some heating oil from somewhere else if it is.
The only problem is that supply hasn't been decreased, not crude and not gasoline, which is what the majority of Americans are aware of from the news and gas station numbers.
I have carefully listened to the discussions here and the statements made by the MSM and Bush and company. I have also watched with interest the price of gasoline in my area. It topped out just after Rita at $3.00 per gallon but has steadily decreased and was at $2.08 yesterday at some stations. I am in the upper midwest where people drive a lot of miles daily.
The reality that is discussed at TOD is almost completely opposite of what the average person has absorbed about energy supply. My co-workers were worried by the high gas prices and have been warned in a few places about high NG prices this winter, both of which are seen as INCONVENIENT. Now that gas has dropped by at least $.75 in the last 2 weeks everyone assumes the worst is over. There is no news currently that supply of any energy will be limited, only that prices may be higher for NG.
Any message about conserving or limited supply has been completely overwhelmed by the decreasing price of gasoline. It has been very warm, so no need for heat yet. People are absolutely certain there is no supply problem. How can there be with dropping prices?
My statements 4-5 weeks ago about reduced supply and higher prices have made me look like Chicken Little. It is very hard to explain to people that all the extra gas on the market is from storage and overseas and that this is not sustainable for very much longer. Ditto with the price of oil, a lot of storage oil released with no refining capacity to do anything with it.
How can the market cause reduction in demand when prices are not allowed to rise? Why should people save money or plan to use less heat this winter when there is no consistant message to do that? How can you expect people to be ready for an energy shortage when the market and media is telling them just the opposite?
There can be only two scenarios for the current pricing. 1) there is no supply problem looming. 2) someone is manipulating the market. Lets see what the future brings. I state again what I posted back in September, if supply doesn't keep up with demand this winter than people will know they were lied to by their government, which could have been proactive but wasn't. The backlash to FEMA and Katrina will look like a picnic compared to what will happen.
Diesel is $3.39.
The farmers and ranchers here are extremely concerned, especially when I tell them the oil markets are being artificially flooded right now, and those prices may go higher later. They all have John Deere tractors and big diesel pickups that pull large stock trailers.
Perhaps if the White House wasn't in such extreme political crisis right now, it could have afforded to let prices rise and demand destruction begin, but for a president whose approval ratings are in the 30s, this was not going to happen.
There are more and more stories about truckers and the price of diesel. They are stating refineries are not working yet to produce more diesel.. Costs and fuel surcharges are creeping up and being passed on to consumers!!
Ole the joys of the upcoming Christmas season..
My new motto: make up your mind about the issue, and live accordingly.
I wonder how North America's energy supplies will hold up during Thanksgiving. How will consumer confidence be affected??
Anyone with any insights??
Iraq - $8 billion/yr
Bangladesh - $450 million/yr
India - 1% of GDP
Indonesia - 4.7% of GDP
Some of the major subsidizing countries are scaling them back, like India, Thailand, Malaysia, Nigeria, etc. I think the impact on demand in some of these countries from the subsidy losses is going to be more significantly, relatively speaking, than losses in OECD countries. If large volumes of demand destruction are needed, they are going to be coming from the developing countries, whose citizens are less able to afford unsubsidized fuel and whose governments are losing their ability to subsidize it.
On an hours worked per gallon basis the price has to get to just over $3.00/gal to match the 1981 peak, but on a % of household disposable income it has to get to nearer $3.80 to reach the prior peak (numbers from AGEdwards about 4 months ago). At $3.80/gal automotive efficiency will again become the big selling point. Local used car dealers have dropped the prices asked for used trucks and large SUVs by 50% in the last couple of weeks. The pain is already setting in. Murray
Sieminski seems to be in error here, the EIA appears to be including imports and stock changes, the two factors that many of us here are looking at. But if the ProductSupplied numbers already take these into account, then this indeed does seem to be demand-destruction in action...
Please enlighten me if I'm mistaken.
EIA Definitions