I have to admit, today’s oil report surprised me. While crude oil production remains battered by the recent hurricanes, causing 2008 production to fall further below last year’s level, huge demand reductions continued to pick up the slack. While some of the reduction may have been temporary due to the gasoline shortage in the Southeast, much of it seems to be a robust trend. Gasoline and distillates consumption has dropped to levels not seen since 2005. But more dramatically, propane demand was the lower than any of the records which go back through 2004, down 42% from last year! This demand reduction is good for our climate, and can help bring pump prices below $3.50 per gallon nationwide (still a record high for this time of year but significantly below the $4.11 price in early July).
So, even though inventories are all significantly below average, they are back into balance due to lower demand. The next few weeks will probably show a growth in inventories as they prepare for the peak demand of wintertime, that is unless another hurricane or other supply shock occurs. Continuing to reduce demand can keep prices from reaching new records this winter and allow us to get our country’s economy back on track.
The natural gas report will come out tomorrow, giving us a sense of whether natural gas inventories will climb substantially above the five-year average as they did last year.
Tags: Hurricane Ike, oil prices