The EIA weekly oil report just came out. And as I’ve been writing for days, it wasn’t pretty. Gasoline inventories fell to their lowest level since the 1960s — when gasoline demand was around half of what it is today. This thin margin of supply over demand has already resulted in 10+ days of shortages in different markets across the Gulf Coast and Southeast. And the data show such shortages may continue for another week or so as refineries and oil rigs still struggle to return online.
One of the more dramatic elements of today’s report was the rapid drop in distillates supplies. They fell 4.2 million barrels, or more than 3%, at a time when inventories need to be building for the winter heating season. Hurricane Ike outages will probably trigger one more week of inventory draws across the board before refineries and rigs return to normal next week. Then, refined fuels will need to recover in the following weeks, potentially pulling crude supplies down below the low average range they are in now. Prices will probably have to stay at these record highs for this time of year to attract the imports and keep up the production necessary for inventories to recover.
As usual, continued strides to reduce demand through efficiency and substitution is the most promising strategy to ameliorate the situation. Continued growth in scooters sales (66% thus far in 2008), bicycling, mass transit ridership, and telecommuting will help the transition be as smooth and shortage-free as possible. Lower demand saved this past week’s inventory report from being much worse than it was. Though all inventories were down significantly from last year, their days of supply measurements were mostly made up by huge drops in demand for gasoline ~5.6%, distillates ~8.2%, and propane ~22%! Continuing these trends would keep our oil costs from rising significantly in the months ahead.
Tomorrow, I will discuss the natural gas weekly storage report and its impact on home heating prices this winter.
Tags: EIA, gasoline, Hurricane Ike, Oil, prices, shortages, supplies