First, here is an unleaded gasoline forecast:
For the first five weeks of the year, unleaded gas supplied (that's the government's definition of "demand") has increased at 2.0% compared to the same period last year. So if you take last year's products supplied, and increase by 2%, you get the dark blue line above.
But, we know that the government's "demand" numbers are understated by some amount, and the actual numbers are greater than that, because the inventory balance every week has been showing that US domestic production has been about the same as "products supplied", but we are still importing a lot of unleaded gasoline, and the inventory does not go up correspondingly. We calculate this "balance demand" every week. It's the net of available supplies minus ending inventory.
If you do this, and then increase it by the same 2% growth rate, you get the pink line.
The yellow line is the estimated actual production. The EIA gives a number for total refining capacity, and also, gives the capacity utilization for the corresponding week a year ago. If you assume that the refiners can and will run their equipment at the same rate as they did last year, taking into account the 1.5% increase in refinery capacity that happened last year, and the average 57% of refinery production that is turned into unleaded, you get the yellow line.
So if you take the estimated 2007 production, and assume that we can (and will) import the same amount last year that we did this year, you can see that almost always, we are able to meet any peaks in demand by importing more unleaded.
This graph is the unleaded imports needed. We have imported as much as 1.4 mbpd over the last couple of years from Europe no problem.
What we can see from all of this is that as long as demand does not grow more than 2%, and we can keep up the flow of imports, we have a little supply cushion in unleaded gasoline.
I think this is an artifact of the refiners being able to add capacity over the last couple of years, keeping ahead or abreast of growth, and also, our continued ability to import gasoline from elsewhere
I did a couple of test cases, and it looks as though as long as demand growth stays under about 4% we will continue to be fine.
Crude Oil:
The estimated refining capacity calculated above is the dark blue line. Last year it grew at 1.5% and I have estimated above that it will grow at about 1% due to more debottlenecking.
The pink line is the estimated refinery demand for 2007. This is calculated by the percent refinery utilization of 2006, (assuming once again we decide to run the refineries at about the same rate as we did last year) times the total refinery capacity. This represents the likely refinery demand for crude oil for this summer. It could go higher or lower, and in fact, the refiners would like to make it higher, so as to keep their plants running to make more money.
The yellow line is the domestic production. Domestic crude oil production has been declining at about 2% per year, for the last however many years, except because of the hurricanes, the 2005 numbers were a little worse. We have recovered to the extent that we are on the same trajectory as we were on before all of that happened,
So if you know the refinery demand, and the domestic production, you can subtract and deduce the demand for imports, which is the green line.
Here is a graph of the 2007 estimated imports compared to the 2006 actual imports, and you can see right away that most of the time, we will need to increase crude oil imports to keep up with the increased refinery demand. In fact, the average of this over the next year is about 330 tbpd. Also note that there will be an extra need for imports in 35 of the next 52 weeks.
Note also the "peak demand" periods during the summer, we will need to import well over 11 mbpd for extended periods of time. I have also put in potential demand from the filling of the new SPR that is supposed to start in March. This does not amount to too much, but will add a little tension to the market.
We do have an inventory buffer working in our favor. Opec/Saudi is apparently determined to cut back (or needs to cut back) on their production. This means that the inventory of crude oil will start to drain toward the end of March, and will seriously drain thoroughout May-July. The amount of actual drainage can be computed once we know exactly what our imports are running for this period, but keep in mind that a half million barrel per day drain is a 3.5 million barrel per week drain, so we could be down under 300 million barrels after about 10 weeks at this rate of drainage.
So, frequent viewers of PO.com will have to be alert for the following information:
a. Will demand growth in the US be higher than 2%
b. Will the amount of imports this year be higher or lower than they were last year? This includes crude oil and finished products.
c. Will there be any other funny stuff, supply disruptions, halting of exports from Mexico, or other, that will cause this projection to be off?
d. How much "can" OPEC/Saudi send us? How much "will" they send us? This is the key question of the day and should be know-able by about mid-June.
All of the above will drive crude oil prices to some extent for the remainder of the year.
Note that right now, we are in a temporary quiet period in which we do not need the oil. This will come to an end in about a month. After then, we will get some excitement. Maybe it will happen before then.
