Alex Mills
By Alex Mills
News that the United States was the largest producer of petroleum and natural gas hydrocarbons in the world in 2014 has many benefits for the nation.
The Energy Information Administration reported on April 7 that “U.S. hydrocarbon production continues to exceed that of both Russia and Saudi Arabia, the second and third largest producers, respectively.”
Since 2008, U.S. petroleum production has increased by more than 11 quadrillion British thermal Units (Btu), with dramatic growth in Texas and North Dakota.
Refiners are poised to make gasoline at a record pace this year, keeping the biggest US crude glut in more than 80 years from overflowing storage. Last July, refiners processed 16.5 million barrels of crude per day, the highest level in monthly Energy Department data going back to 1961, and refiners are expected to add an additional 100,000 barrels per day (bpd) of capacity soon.
Crude oil inventories have increased 97 million barrels to 482 million, the highest level since 1930, which has caused crude oil prices to decline 50 percent since November 2014.
In Cushing, Oklahoma, the delivery point for West Texas Intermediate futures, supplies have more than tripled since early October to a record 60.2 million barrels. Refiners are enjoying the best margins in two years as they finish seasonal maintenance of their plants before the summer driving season. Refining margins in March have averaged $28.09 per barrel, the most since March 2013.
Refiners typically schedule maintenance shutdowns in the spring and fall, reducing oil demand during that time. US refiners increased crude runs by an average 1.1 million bpd in April through July over the past 5 years.
Two pipelines from Cushing to the Gulf Coast have become operational since 2012 with a capacity of 1.5 million b/d, but it costs about $6 per barrel to ship oil to the Gulf Coast from Cushing.
Also, WTI is in a contango market structure, with futures contracts for April 2016 selling for $10.84 per barrel more than April 2015. That encourages traders to keep crude in Cushing to profit on the trade.
Gasoline prices have declined also, because the major cost of gasoline is crude oil.
EIA projects that drivers across America will pay an average of $2.45 per gallon for regular grade gasoline this summer (April through September). This year’s projected average summer price is down from a $3.59 per gallon average during summer 2014.
Forecasts of crude oil prices and wholesale margins are uncertain, and any difference in actual prices or margins from EIA’s forecast would be reflected in the retail gasoline price. Additionally, prices can vary significantly among regions. Projected average summer prices for 2015 range from a low of $2.25 per gallon in the Gulf Coast region to a high of $2.82 per gallon on the West Coast.
Based on this price forecast, the average U.S. household is expected to spend about $700 less on gasoline in 2015 compared with 2014, as annual motor fuel expenditures are on track to fall to their lowest level in 11 years.
Alex Mills is President of the Texas Alliance of Energy Producers. The opinions expressed are solely of the author.
Speak Your Mind