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Page added on April 24, 2017
People aren’t buying enough gas
Lackluster gasoline demand is once again raising concerns that the oil market won’t be able to escape the doldrums.
Demand for U.S. gasoline has recovered since January, but remained below 2016 levels throughout much of this year. Now, analysts are worried weak consumption will cause gasoline stockpiles to keep building and eventually result in weaker crude oil demand and pricing.
U.S. gasoline futures were down more than 1 percent on Monday, reflecting demand concerns as refiners emerge from the winter maintenance season and prepare to turn out more fuel. Meanwhile, U.S. crude settled 39 cents lower at $49.23, extending last week’s deep losses.
“As gas prices drop, that creates an undertow for the entire crude oil market,” said Tom Kloza, global head of energy analysis at Oil Price Information Service.
Part of the problem is a tough comparison with extraordinarily low gasoline prices last year. The national average gasoline price on Monday was nearly 28 cents above last year’s level, according to GasBuddy.com.
“I’m in the camp that says last year was a little bit of the anomaly,” Kloza said. “Gas was so cheap that we drove a little bit more almost capriciously. This year, I just don’t think it’s going to happen.”
In a troubling sign, the nation’s gasoline station operators have reported at industry conferences that their sales are down 1.5 to 2 percent this year, according to Andy Lipow, president of Lipow Oil Associates.
“When you hear retailers telling you that their demand is down you’ve got to be a believer,” he told CNBC.
Lipow said he fears that trend will carry through for the balance of 2017. Demand is certain to rise as the summer driving season ramps up, but Lipow sees stockpiles remaining relatively high.
That puts pressure on refiners’ profit margins and could cause them to reduce activity at the nation’s refineries later this year, leading to an inventory buildup of crude oil, the feedstock for most fuels.
Kloza said Gulf Coast refiners would start feeling pressure if the cheapest conventional gasoline blend stock trades at $5 to $6 above a barrel of Light Louisiana Sweet crude, down from a spread of roughly $8 today.
Crude oil prices are down about 8 percent this year as rising U.S. production caps rallies fueled by short-selling and expectations that the Organization of the Petroleum Exporting Countries and other producer nations will extend a six-month deal to cut their output.
U.S. crude looked like it was on a path to settle between $49.50 and $52 a barrel after sinking to about $47 last month, Kloza said. However, it now appears that any disappointing news could send the commodity tumbling back down to $47, he added.
John Kilduff, founding partner at energy hedge fund Again Capital, believes oil prices could fall even further — to the November lows of $42 a barrel.
Last week’s report on U.S. crude stockpiles showed a 1 million barrel decline, but refineries ratcheted up activity, again raising the specter of higher gasoline inventories, according to Kilduff.
“That will remove quickly any kind of thought that those supplies might get tight,” he said.
9 Comments on "People aren’t buying enough gas"
baha on Mon, 24th Apr 2017 6:16 pm
Ha, welcome to the beginning of the transition…
I wonder how long the FF industry can function without constant growth to cover the interest on their debt.
Outcast_Searcher on Mon, 24th Apr 2017 6:49 pm
baha: when globally, FF use isn’t growing, be sure and get back to us.
Aside from the big economic hit in 2009, global oil demand has been increasing each and every year for a long time.
A little first world demand mitigation doesn’t matter much with the third world growth machine ongoing.
Apneaman on Mon, 24th Apr 2017 7:15 pm
Maybe too many folks been taken down a few notches or totally ruined by one or more of the many AGW jacked weather events?
Record-breaking climate events all over the world are being shaped by global warming, scientists find
https://www.washingtonpost.com/news/energy-environment/wp/2017/04/24/record-breaking-climate-events-all-over-the-world-are-being-shaped-by-global-warming-scientists-find/
Revi on Tue, 25th Apr 2017 7:47 am
I am going to buy a gas guzzler to help them out. It’s the right thing to do!
rockman on Tue, 25th Apr 2017 1:34 pm
Revi – It continues to amaze me how some folks continue to buy into the absurdity that US refineries are willingly losing $BILLIONS. Shame on you. LOL. You do understand that the US market isn’t the only one supplied by the industry, right? From the EIA:
“U.S. refinery capacity and utilization have increased to accommodate increasing domestic crude oil production. Gross inputs to refineries averaged a record 16.1 million b/d in 2014 compared with 15.1 million b/d in 2010.”
And to put a sharper edge on it:
“US refining flexibility sustains export opportunities, profitability
Domestic LTO and associated gas production have served as stable cost-advantaged feed and energy sources in the last few years. But steady growth in refined product exports during the last decade, alongside substantial investments in downstream processing before the US light crude production boom, have left US refiners well-positioned to maintain near-term profitability.
Finished product exports – Incremental reductions in US demand for finished petroleum products amid growing global demand have prompted a trend of dramatically higher exports of finished products from US refineries.
With domestic demand for petroleum-based fuels projected to continue falling, US refining and midstream companies have made substantial investments to expand both processing capabilities and transportation infrastructure to meet broader global demand for refined products.”
{As pointed out before within a 15 miles radius of where the Rockman is typing the industry is spending $50+ BILLION to expand capacity. So does that make any sense to you: not only is the US refinery industry losing $billions every month but is also spending tens of $BILLIONS expanding those money losing operations? Really…you’re buying into that silliness?}
To continue:
“Since 2005, US finished product exports have increased 270% to more than 2.7 million b/d as of end-November 2015, marking the fourteenth consecutive year of increased product exports from US refineries to destinations abroad. Currently, about 50% of exports move to South America and Latin America, with Europe, Asia-Pacific, and Canada receiving about 13% each, according to statistics from the EIA.”
{Update: as of Jan 2017 the US refining industry is exporting products made from 4.8 MILLION BOPD}
And how is it that “money losing and near death US refinery industry able to out compete foreign refineries? –
“Refiners that have access to low-cost transportation (rail, pipeline, or water) and are equipped to process a diverse crude slate likely, however, will continue profitable exports as global consumers once again adjust to cyclical dynamics typical of an oversupplied crude market.
Lower WTI prices, however, did not immediately result in lower US gasoline prices because, as a globally priced and traded commodity, gasoline remained more closely tied to the international Brent marker. US refiners were initially able to process increased volumes of discounted WTI-tied crudes to produce finished products that could fetch significant profits via export to global markets.
While investments in US crude-focused inland and port infrastructure (rail, storage, and pipelines) over the last 5 years have closed the price gap between WTI and Brent, they also have minimized bottlenecks and increased deliverability of LTO to refineries. These investments, combined with heightened operational flexibility, have increased refiners’ ability to choose feedstock suppliers, both domestic and international, shielding them from interruption to domestic LTO production.
North American refineries have maintained considerably higher profitability than European refineries on an earnings/bbl-processed basis. While many factors contribute to refinery profitability (power requirements, feedstock costs, access to high-value end markets, etc.), North American refiners’ earnings/bbl processed tend to be higher than international competitors as a result of their greater ability to process a wide variety of crudes, according to an EIA analysis of 26 publicly traded companies based in North America and Europe.
Of these 26 companies, the 10 with nearly all refining capacity in North America consistently maintained higher earnings/bbl processed since 2011, beating their overseas-centered counterparts’ by as much as $6/bbl in 2012.”
Numbers and analysis source: The author – Steven Crower is director of energy at SDR Ventures Inc., where he provides merger and acquisition advisory services to all sectors of the industry. He also serves as adjunct professor at the University of Colorado at Denver, where he teaches courses on global refining and terminalling. He holds a BS in civil engineering from the University of Michigan and an MBA in finance from Rice University, Houston.
But, believe what you want. Crower probably doesn’t know what the f*ck he’s talking about compared to our resident expert in all oil related matters. LOL.
rockman on Tue, 25th Apr 2017 1:44 pm
Revi – And here’s another fool that doesn’t understand the “model” and pissing away $BILLIONS. What an idiot when it comes to picking stocks to buy. Maybe Mr. B is just looking for a write off. LOL.
For several quarters, Buffett’s Berkshire Hathaway has been buying up Phillips 66, one of the largest U.S. oil refinery companies. In January, he bought even more, taking his stake in the company to more than 13%.refining sector
Refinery stocks have done fairly well despite the crash in oil prices over the last couple years. The refinery sector has continued to capitalize on the spread between WTI crude oil and Brent crude. Refiners can take the cheaper WTI oil and sell it at higher Brent prices.
rockman on Tue, 25th Apr 2017 2:02 pm
Revi – And if you still don’t understand which country’s refining industry is making more money from exports then any of the rest:
Below are the 5 countries that exported the highest dollar value worth of refined oil during 2015:
United States: $74.7 billion
Russia: $65.6 billion
Singapore: $42.1 billion
Netherlands: $41.9 billion
South Korea: $30.7 billion
WOW! Selling $75 BILLION just to foreign buyers and doing it at a loss. Just amazing, eh? LOL.
I forget: did I mention the US is the largest refiner on the planet, about 50% bigger then #2 China? And losing money and on its last leg? Must be making up for those losses by selling more. LOL.
Apneaman on Tue, 25th Apr 2017 2:16 pm
rockman, if you change your expectations of the humans, you will no longer be amazed at their error ridden thinking and information filtering. Anyone who has clicked on and read a few of the many research explainer articles and the research itself, on human behaviour & psychology, rooted in their evolution, that I have shared will be armed with the knowledge to try and change their expectations of the humans. It’s not the easiest thing to do being a human yourself and all, but it is possible if you work at it. For most, that information is the last thing they want to know because when applied to their own worldview and thinking it shatters their illusions.
“Humans cannot live without illusions. For the men and women of today, an irrational faith in progress may be the only antidote to nihilism. Without the hope that the future will be better than the past, they could not go on.”
― John N. Gray, Straw Dogs: Thoughts on Humans and Other Animals
Kenz300 on Tue, 25th Apr 2017 5:51 pm
Soon even fossil fuels companies will be divesting from fossil fuels as they transition to “energy” companies with investments in renewables.