Oil Prices Not Being Driven By Gasoline
"Gasoline, at least in the short-run, has traded more like an annoying by-product of crude than as its core fundamental driver," Goldman's report said. "Weakness in U.S. gasoline margins is not the surprise the surprise is that the weakness not only has not mattered to crude oil markets, but if anything, is helping to keep oil supply/demand in balance."
Meanwhile Murti says demand for middle distillates, like diesel, gasoil, heating oil and jet fuel and kerosene is racing up. The difference in prices between gasoline and middle distillates, known as a crack spread, has been exceptionally strong signaling tightness in global refining capacity.
Just a year ago US RBOB spot gasoline prices were worth some $92.60 per barrel while NWE jet was priced in at some $83.3, a discount of over $9 per barrel. Today that same jet fuel is nearly $30 more expensive than RBOB, and has led to U.S. refinery Valero switching production by up to 7 percent from gasoline to gasoil.
"High crude oil prices despite weak U.S. gasoline cracks is sending the signal that global oil markets do not need or perhaps want the U.S. gasoline consumer to recover," Goldman's report writes.
Adding bearish momentum to the price of gasoline in the medium-term is also the increased production of ethanol. Up to 7 percent of a barrel of gasoline has to be made of ethanol in the United States, further pushing gasoline production into the "by-product" category.
But overall trend is undeniable according to products traders. They say demand for jet fuel can only continue to rise as Europe races to compete with soaring demand from the Middle East & Asia. This they say means strength in middle distillates is likely to remain a long-term rather than short-term trend.
Today oil prices jumped to a new record of $122.73 a barrel before retreating to settle up $1.87 at $121.84 on the New York Mercantile Exchange.
Oil prices have nearly doubled from about $62 a barrel one year ago and a new Goldman Sachs prediction says that oil prices could rise to $150 to $200 within two years. Others like Tim Evans, an analyst at Citigroup Inc, counters Goldman's analysis with a note predicting that crude oil prices could as easily fall to $40 a barrel as rise to $200 over the next two years because supplies are, as Evans put it, comfortable.
It's not the first time Murti has espoused a super spike theory, in an April 2005 note, he predicted the oil market was in the early stages of an unprecented rally that would send oil prices from a then-record of about $57 a barrel to $105.
Also today in it's monthly report the Energy Department's Energy Information Administration predicted oil prices will average $110 a barrel this year, up $9 from last month's forecast. The EIA also said high prices will cut T.S. demand for petroleum products by 330,000 barrels a day this years; last month, the EIA predicted U.S. petroleum consumption would fall by 210,000 barrels a day.
Strong demand from countries such as China, India, Russia, Brazil and in the Middle East will support high oil prices and keep global oil demand growing by about 12 million barrels a day this year, unchanged from last month's forecast, the EIA said.
Overnight gas prices slipped 0.1 cents to $3.61, according to AAA and the Oil Price Information Service. In it's report the EIA said gas prices will peak at a monthly average of about $3.73 a galloon in June, about 13 cents higher than its previous forecast. Gas futures closed the day up 5.26 cents to settle at $3.1055 a gallon after earlier setting a new intraday trading record of $3.126.
Heating oil rose 4.7 cents to settle at $3.3535 a gallon after rising to a trading record of $3.3712.
Natural gas advanced to $11.083.
Indonesia Energy Minister Purnomo Yusgiantoro told reporters in Jakarta the government may leave the Organization of Petroleum Exporting Countries(OPEC) as early as next year due to shrinking production. This has made the country a net importer of oil. He indicated Indonesia may leave OPEC in 2009 since it has paid its membership fee for this year.
The country has been weighing leaving OPEC since at least 2005 as output at aging wells declined and investment in exploration has slowed. At a meeting yesterday, officials withdrawing from OPEC for as long as the country's production remains below 1 million barrels of oil a day.
Southeast Asia's biggest economy imports about one-third of its oil product needs because it lacks adequate refining capacity and faces falling oil output. The Indonesian government has lowered its oil sales estimate for 2008 to 927,000 barrels a day from 950,000 barrels a day last year.
It's crude oil output likely fell to 859,853 barrels a day in April from 867,516 barrels a day in March.
Indonesia plans to sell 7 million barrels of oil, or half of its stockpile this year to increase revenue as crude prices reached a record. This may add $665 million to state coffers, on the assumption that Indonesian's oil price averages $95 a barrel this year.
In Nigeria rebels promised on Tuesday to halt attacks on the oil industry if the Nigerian government would allow former U.S. President Jimmy Carter to act as a mediator.
The rebel Movement for the Emancipation of the Niger Delta(MEND) said Carter has accepted its offer to mediate in the conflict "on the condition that the Nigerian government and any other relevant stake holder invites him."
The Carter Centre's vice president for peace programs, John Stremlau, said the former president would take such a request from all parties seriously but it was "woefully premature to suggest he will plunge himself into mediating this conflict."
MEND's campaign of violence has cut output in Nigeria by around one fifth. The bombing of a Royal Dutch Shell flowstation in the southern Nigerian state of Bayelsa on Saturday marked MEND's fifth strike in just over a month and the attacks are expected to worsen with the trial of militant leader Henry Okah beginning next month, analysts say.
(See bottom of webpage for current chart of crude oil prices)
posted by Mark Johnson at 4:47 PM
