Gasoline supplies lowest on record, but inventories saved by lower demand
The EIA reported today that the whole fuel inventory complex is down significantly from last year and below the five-year average. Gasoline supplies are at their lowest level since detailed records began in 1981. In normal times, such a report would result in much higher prices. But these aren’t normal times as reduced demand continues to be the savior of 2008 for lowering prices and keeping our inventories above minimum operating levels.
However, next week’s report will test the ability of lower demand to make up for even lower supplies. Crude supplies will most likely fall below 290 Mb with gasoline supplies falling the farthest, potentially below 180 Mb. These inventories would have rattled markets last year, but are much easier to handle thanks to last week’s consumption that was 3.7% below last year for gasoline and was 7.5% lower for distillates/diesel. Propane inventories will probably remain way below average, though recent demand reduction on the order of 25% from last year has prevented shortages thus far for the fuel. So far, crude production recovery from Ike has been very slow as only 4% of production has been restored as of 11:30am CST today. That will need to ramp up quickly to prevent market imbalances from lasting through the winter from Ike.
Also on the bullish side, Nigeria has reported that their production has been reduced another 600,000 barrels per day by the escalation in fighting that began a few days back. Their production is now down 40% from their normal level of 2.5 million barrels per day. Such a disruption offsets Saudi Arabia’s current overproduction and helped futures prices to now trade around $95 per barrel. It looks as though Lehman Brothers was right about the price of oil dropping below $100 due to the economic slowdown. Too bad it took their own downfall to close the deal.
Tomorrow, I will report on the implications of the weekly US natural gas report that will emerge in the morning. I’ll also explore the exciting prospects laid out in a recent report for solar to be as big as wind power in just five years.