I haven’t been writing much about Peak Oil recently. It’s not because I’m unhappy that prices have come down, or that I think the problem has gone away. It hasn’t. The recent decline in oil prices may have some people breathing easier. And the near miss by Hurricane Gustav didn’t destroy oil infrastructure in the Gulf of Mexico. But things continue to get worse as far as supply goes, especially in the Gulf states.
Energy Bulletin: Gustav and prices (from Tom Whipple and ASPO)
As it became apparent that hurricane Gustav would cause minimal damage to the Gulf oil infrastructure and that any lost production would be made up from emergency stocks, oil prices began to drop and continued dropping all week. Despite the near total shutdown of oil and natural gas production in the Gulf and the temporary closing of most Gulf oil ports in preparation for the hurricane, the oil markets continued to focus on a weakening economy and a strengthening dollar to send oil down to a $107.89 close on Thursday – the fifth straight session with a lower close.
This week’s stocks report, which was released on Thursday due to the holiday, showed crude stocks falling by 1.9 million barrels, gasoline stocks by 1 million barrels and distillate stocks by 400,000 barrels. Demand for gasoline in August averaged 1.6 percent lower than in 2007. Jet fuel demand is 9.7 percent lower and overall petroleum consumption is down by 3.5 percent as compared to last year.
While the hurricane did relatively little damage to oil production and processing facilities, it devastated the electric power distribution system in Louisiana so that much refining capacity and many pumping facilities remain out of service. As of Thursday afternoon, the US Minerals Management Service reported that 1.24 million b/d, or well over 90 percent, of Gulf crude production was still shut-in after being closed down last weekend. Twelve refineries, capable of 1 million b/d of gasoline and 700,000 b/d of distillate production, remained closed and another six are operating at reduced capacity.
The Capline crude pipeline to the Midwest is still down, but is expected to begin pumping with the help of emergency generators shortly. The Colonial and Plantation pipelines that move gasoline and other products to cities along the east coast are operating at reduced levels due to inadequate electric power and a lack of product to move.
With nearly all of the Gulf’s oil production closed in for most of this week, and considerably lower refining activity taking place in Louisiana, next week’s petroleum status report will give a better picture of the US energy situation. It could turn out over the next week or so that Gustav did more damage to the US oil supply than the markets initially perceived. As of last Friday, gasoline stocks, particularly along the Gulf Coast, were very low. It now seems likely that the US will lose at least 1 million b/d of refined gasoline for a week or more plus whatever gasoline imports were delayed while the ports were shut.
All this suggests that Gulf and east coast gasoline supplies are getting very close to the level at which shortages could begin.
How will “next week’s petroleum report” move the markets? Buy on the rumor, sell on the news.
Crude is now in a bear market and will remain so until it breaks and successfully retests 117 or so (and that number rises as time goes by).
No doubt it will be used as an excuse to rapidly run up pump prices and then only slowly reduce them though.
Putting the news together shows manipulation of gas prices, just as predicted.
FIRST THIS:
NEW YORK (AP) –Oil prices closed slightly lower in jittery trading Wednesday, as the strengthening dollar and signs of a slowing economy outweighed inventory drops and word that OPEC would cut production.
Refineries were running at a low 78.3 percent of their capacity last week, the report said.
“It’s being seen as somewhat aberrant because of the storms,” said John Kilduff, senior vice president of risk management at MF Global LLC. “But I don’t think you can ignore this data.”
THEN THIS:
NEW YORK (AP) — Gasoline prices jumped to unprecedented levels in the wholesale markets Thursday as Hurricane Ike tore across the Gulf of Mexico, threatening to strike Texas and its refineries.
Gee, refineries running unusually low as Ike approaches, Ike hits and gas prices go up. Gosh who ever would have thought it!
Maybe you’re misreading what’s happening, and missing the rest of the story just like the MSM. Refineries are running low because they either came offline or weren’t getting supplied as a result of the precautionary shutdowns that occurred recently for Gustav.
Ike’s track and strength look to take it right at Galveston, TX. Results could be serious for refineries, less serious for the platforms.
This would result in a glut of crude building up waiting to be refined. Crude could drop into the $80s while we’ll be paying $5/gallon for gasoline. If there’s enough to go around.
I suggest anyone who hasn’t locked in heating oil do so for at least 50% of your usage (if you have that option) as early as possible tomorrow.
Yes the hurricane may come. If you were managing the refineries for the sake on maintaining supply you would have spent the last week or so at full capacity. They are managing for the bottom line and if you can shrink supply some before the hurricane, and then it comes and you lose electricity and have to shut down for a bit, you can easily bang the pump price back up to $4 bucks and then take weeks and weeks to work the price back down. That is market manipulation. That is profit. That is capitalism, that is the “free market”.
Your oil suggestion is a poor one. If you are out of oil then sure, its an OK time to buy. If you could lock in now for the next 10 years, its an OK time to lock in. But if you have to lock for one year now is NOT the time.
Trends can always change but Crude is now solidly in a bear market. It is around 30% off its peak, by definition a bear market, not a correction. Additionally it has solidly broken the bull trend line that was established around a year ago and it is also below its 20, 25, and 200 day moving averages. It is now alone; commodities in general have the same chart pattern, (see the CRB basket index for comparison.) Additionally the dollar has significantly rallied.
Crude faces very heavy resistance at around 110-112 and very solid support around 98-100. The trend is your friend! The money bet is a breakdown below 98 in which case 82 or so is very likely.
Commodities are telling us that we are heading for a serious recession. Oil in particular and commodities in general were a bubble and we have seen a blow-off top. The volume on USO (an exchange traded crude tracking fund) doubled almost 4 times during the run up to the peak. That is speculation pure and simple. My persoanal, unprovable theory is that the Fed has been running the presses overtime for almost 8 years. The dot com money went to real estate, the real estate money went to commodities, I just don’t know where its going to go now. I really diversified my IRA a half a year ago but there is no where to hide.
The dollar was the place to be for the last month or so but that is really hard to put into a peon’s (like myself) portfolio. And with Lehman about to go down for a third government bailout it just seems impossible that the dollar will provide much more cover.
The Government buyout of Fanny and Freddie may be the most significant event of our lifetime (yes including 911) and the decision was NOT made by our government; Europe and China forced the buyout, our sovereignty is essentially gone. Are any candidates talking about that?
I am starting to wonder if deflation will be the next big thing; mostly because nobody is remotely talking about it. I think its coming to either deflation or hyper-inflation; I don’t see a soft landing regardless of the next President.
I am very fearful!