I built a little supply and demand model based on the EIA weekly petroleum data. I did one for Unleaded, and one for crude oil. The purpose of this was to see what the supply/demand situation was going to be for the upcoming summer, so as to maybe anticipate any issues. This will allow the frequent viewers of PO.com to have a head start on the rest of the country on this.

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.

A friend who is an energy engineer predicted $4 gas by July 4th. I thought that might be a bit high, but I do think that $3 gas is possible by Independence day. If consumption doesn't grow it could be less. Gas is inching up here, so I don't think my prediction is unreasonable. His might not be either, depending on what happens in the next month or two. Beware the ides of March!

Nice summary. As you implied, crude oil imports are the chief wildcard.

The IEA stated a few days ago that, after predicting that oil/product inventories will be down about 200 million barrels from October to March, OECD inventories will only hold steady in the second quarter.

On top of that, Saudi Arabia and some other OPEC members clearly indicated that they will redirect output cuts to the West from the East starting in March. However that cutback may take up to six weeks to show up in US ports.

Unless OPEC suddenly comes up with more supply, US crude inventories are going to run down this Spring more than most expect (barring a sudden recession or other calamity).

Whether prices go up or down really depends on which agency has a better handle on 2nd Qtr demand. The EIA says it will go up substantially while IEA stated in their last OMR that the next quarter will be very soft (84mb/d).

For those who don't already read this, you can get a text file of the DOE's weekly petroleum status report every Wed. at 10:30 here.

Some interesting things in the report this week. US total oil demand in the past month has averaged 21.3 million bpd, up 4% over the same period last year. Maybe this is attributable to a relatively cold February this year over last - but wait, gasoline demand is also up 2.1% and jet fuel demand up 4.5%! (did spring break come early this year?)

Where is this demand destruction I keep reading about? This "demand is flat in the US"....

Crude inventories rose this week but only because imports surged to 10.4 million bpd, and refinery capacity was only 86%. Maybe the inventory numbers are mainly seasonal, but those demand numbers seem incredibly higher than every forecast I've read!

Yes, demand figures are strong - but this may be a sign of a developing problem only POers realized could happen - the US is becoming less energy efficient.

This is part of what I'm also posting in the weekly inventory thread:

It appears that imports were up to about 9.6 million barrels per day last week, but the additional amount was actually imported the week before and the EIA just adjusted this week's figures. As the EIA previously said, unless their report is market moving (which means only if inventories come in too low), they won’t explain why they made adjustments.

Still imports of 9.6 mbpd, as compared to the start of the year where it was about 10.0 mbpd (per an EIA spokeperson), can be a significant drop over time. But the bigger story is now the booming oil product demand.

For the first ten weeks of the year, US oil product demand has averaged more than 850,000 barrels per day higher than compared to 2006 (per the EIA). It is becoming somewhat alarming to now see US growth in oil & products consumed start to exceed economic growth. This can not be blamed mostly on the weather (if you remember we had warm US weather through early February).

Is this because the US is becoming less energy efficient? Almost everyone thinks that the US is becoming more energy efficient, not less so. Even peak oilers talk of demand destruction – but not only is there not any in the US, it appears that falling EROEI is finally taking its toll.

The significant factors that may be increasing oil product use are suburbanization, larger vehicles, and a rising population. But perhaps the most important factor in falling EROEI is the use of ethanol, which results in US drivers getting on average about 3% less miles per gallon. Plus additional diesel is consumed in the production of corn and transportation of ethanol to market.

The only positive note on the US supply/demand story is that natural gas to liquids production has just about offset the loss of imports. So the US is now depleting oil/product stocks on average has about 850,000 bpd per day. Unless imports increase, or consumption drops, we are headed for much higher oil product prices later this year.

Turkey has had $2/gallon gasoline which is very high but diesel has continued to rise while gasoline has only gone down by a few percentage points. Demand destruction will only set in once oil reaches $100+/barrel.........

How can oil demand be 21.3 million bpd, imports be 10.4 million bpd and inventories be rising. If that were really true, the USA would be the largest producer of oil by far. 21.3 minus 10.4 is 10.9.

Have I gone wrong, or are the numbers fudged?

There are also product imports of 2.1 million bpd, processing gain of 1 mbpd (one barrel of oil ends up giving more tha one barrel of product) plus natural gas to liquid prodcution of about 2.5 million bpd. The latter has improved rapidly over the last year, but as to where and how that's being done, I know little.

What part of "Non-Negotiable" do you not understand??

Looks like Bush's ambitions to rein in energy demand are equally successful to ambitions of reining in the Iraq insurgents.

So, where do you all see demand destruction kicking in now, when gasoline reaches $4/gallon or so in the US?
g

It find it annoying that the United States must import refined products.

Why can't we construct more refining capacity in this country?

We exported super cheap crude oil in the 30s, 40s, and 50s and now we have to pay a surcharge to import considerably more expensive refined products!

That's the behavior of a third world colony, not the world's super power!

It appears that the US is acting like oil was a finite resource, not worth investing in...

Demand destruction will only set in where demand is elastic. In the US, we have no mass transit system, no bike only roads, no practical electric or biofuel cars available for the public to purchase, and our cities are so extremely sprawled out that transportation is a necessity.

Discretionary driving is about 2,000-3,000 miles a year for most Americans, out of the 12,000 or so miles per year driven. Gas can go to $10/gallon, and Americans will still keep driving in order to get to work and to buy the necessities. This oil consumption will not change unless we have widespread access to convenient and cheap mass transit, bike only roads, and/or practical alternative fueled cars. All of these things are practical, scalable, and affordable when a given set of non-technological constraints are met. Americans would gladly use them. Certain interests within government and business do not want to shift over due to less taxes/profits/economic growth generated, and have done everything in their power to prevent this transformation of our economy and social structure.


The oil companies are going to be making a lot more profit, the world's large multinational corporations will be acquiring a lot more cheap assets, the defense industry making a lot more money on resource wars, and the governments of the world are going to be seizing a lot more power as we slide down the bell curve and face a dieoff. It's certainly not without an effort on their part.

Too bad. Robbed of Ecotopia by the world's greedy elite, we get to have Mad Max.