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Largest East Coast Pipeline Reveals Demand For Gasoline Is Crashing

June 23, 2017

Largest East Coast Pipeline Reveals Demand For Gasoline Is Crashing

There’s a reason this week’s EIA survey showing gasoline and oil supplies declining has failed to stop RBOB prices from collapsing to 7-month lows: The start of the summer has done nothing to revive sluggish demand. That’s because despite what the EIA survey said, little has been done to reduce record fuel inventories.

The squeeze has gotten so bad, Northeast Colonial Pipeline Co., the operator of the biggest US fuel pipeline system, said that demand to transport gasoline to the country’s populous northeast is the weakest in six years, the latest symptom of a global oil market grappling with oversupply. It’s notable that this peak has arrived despite the advent of the summer driving season, which has seen gasoline demand pull back from last year’s record highs, according to Reuters.

Because of the oversupply in the northeast, “line space”… the cost of renting “space” on the pipeline to assure one’s ability to get supplies of gasoline when necessary… has gone negative, according to Reuters. What can be more exemplary of excess inventories and of reduced demand for gasoline than this?

Refiners are in part to blame for the problem – they have continued to pump motor fuel at record levels for the second year in a row, worsening the oversupply problem, for fear of losing access to pipeline capacity.

More broadly, attempts by large producers to reduce global supplies have failed to meaningfully raise the price of oil.  And with good reason: Traders have been skeptical of an agreement between OPEC and non-OPEC producers, including Russia, to extend last year’s supply cut, and already they’re concerns are being validated: Iraq has said it plans to increase production later this year despite the agreement.

…click on the above link to read the rest of the article…

The Renewable Fuels Con

May 7, 2017

The Renewable Fuels Con

You can’t just sell gas anymore.

Most people don’t realize it, but what they’re pumping into their car’s tank isn’t actually gasoline, properly speaking. It’s gasoline mixed with ethanol alcohol – the ratio currently set at 10 percent ethanol and 90 percent gas (E10).

“Diesel” often isn’t exactly diesel, either.   

The real stuff – the petroleum-based stuff – is mixed with bio-diesel, which is derived (like ethanol) from non-petroleum sources, usually vegetable matter.

The market isn’t demanding this – but the government is.

There is a law called the Renewable Fuel Standard. It  requires the “blending” of oceans of corn con ethanol and biodiesel boondoggle into the general fuel supply – ostensibly, to reduce America’s dependence on foreign (and non-renewable) oil.

Like so much that government does, it sounds good – but what it actually doesisn’t so good.

The RFS has raised refining and distribution costs as well as the cost to motorists, who not only pay more for the Uncle-adulterated fuel but also for the fuel systems in their vehicles, which have had to be modified to be compatible with the not-quite-gas (and sort-of diesel) fuels the government is pushing.

These adulterated fuels are also – ironically – less efficient. A gallon of pure gas will take you farther than a gallon of 90 percent gas and 10 percent ethanol because the gallon of gas contains more energy than a gallon of E10.

As is almost reflexively true of everything the government mandates, we get less – and pay more for it.

But that doesn’t mean someone’s not making a buck – as is also usually true when government intervenes in the market.

In addition to the Usual Suspects – the ethanol lobby, for instance – there is a another group of crony capitalists making hay off the RFS mandate. These are the large refiners and chain gas stations, who can leverage – in the lingo of the federal bureaucracy – Renewable Volume Obligation (RVO) credits to gain an unfair competitive advantage over smaller refiners and independent gas stations.

…click on the above link to read the rest of the article…

“Recessionary” Demand Forces New York Harbor To Divert Gasoline Shipments

February 18, 2017

“Recessionary” Demand Forces New York Harbor To Divert Gasoline Shipments

Two weeks ago, Goldman analysts were stunned when they noted that in recent weeks gasoline demand in the US has collapsed to levels that suggest not all is well with the economy. In fact, as the bank’s oil expert Damien Courvalin said “to achieve the 5.9% decline suggested by the weekly data, our model requires PCE to contract 6%, in other words, a recession.”

Goldman then quickly changed the unpleasant narrative – one which would suggest that the US economy is in far worse shape than official data represent – and provided several alternative explanations why such a “sudden collapse is unlikely” and said that “we view the larger than seasonal ytd builds in US gasoline stocks as driven by transient supply factors rather than persistent demand issues.”

Perhaps, but so far those “transient” supply factors are only getting more chronic, and as supply continues to grow in anticipation of a demand bounce that refuses to materialize, leading to ever louder speculation that there is something very wrong with the US consumer…

… gasoline inventories have hit record levels, and nowhere is this more obvious than on the East Coast, where as Bloomberg writes overnight, “the biggest gasoline market in the U.S. is bursting at the seams.”

As a result, just like during last year’s unprecedented gasoline glut which, too, was supposed to be “transient”, but has only gotten worse, traders are now lining up to export gasoline and diesel from New York Harbor, an area that normally relies on fuel imports from Europe and eastern Canada.

While at least 6 cargoes that were headed to New York from Europe in January and early February were diverted to the Caribbean or the U.S. Gulf Coast, that wasn’t enough to stem the oversupply building up in terminals along the Eastern Seaboard. Record-high inventories in the region are now pushing prices low enough to turn the typical trade flow on its head.

…click on the above link to read the rest of the article…

Which is Worse: A Busted Pipeline or a Politician with a Case of the Do-Somethings?

September 22, 2016

Which is Worse: A Busted Pipeline or a Politician with a Case of the Do-Somethings?

gasoline pump

Economists have a grumbling and cynical stereotype. This might be because even the most basic economic principles are ignored by those who should know better and vehemently denied by those who don’t.

Case in point: a restricted supply of gasoline is expected across the Eastern United States because of a busted pipeline, and state governors enact price ceilings to keep the price of gasoline artificially low.

In Alabama, Governor Bentley forbade “unconscionable prices for the sale of any commodity” in his State of Emergency proclamation.

Governor Deal did the same in Georgia. The Georgia Consumer Protection Bureau even has a Price Gouging Form, for citizens to tattle on other citizens for providing a good that is in more limited supply than usual. The website says, “Businesses may not sell motor fuel products, including gasoline, at prices higher than the prices at which those same products were offered before the declaration of the State of Emergency.”

Even first-year economics students know that when the price of a good is set arbitrarily low by government decree, the quantity demanded is greater than the quantity supplied. In other words, a shortage emerges.

The Function of Market Prices

Market prices are the result of an agreement between buyers and sellers of a good. All of the information deemed relevant by those buying and selling is incorporated into their preferences for the good. Sellers want higher prices and buyers want lower prices, but both are constrained. Buyers must outbid other buyers if they want it enough and sellers must underbid other sellers to attract buyers.

If the total stock of some good increases, buyers are only willing to pay lower prices and sellers, too, are willing to accept lower prices. This is because of the law of diminishing marginal utility. Additional units of a good must necessarily go toward the satisfaction of less urgent ends.

…click on the above link to read the rest of the article…

America’s “Soaring” Gasoline And Oil Demand Was Just An Illusion: How The EIA Fooled The Algos

July 3, 2016

America’s “Soaring” Gasoline And Oil Demand Was Just An Illusion: How The EIA Fooled The Algos

When it comes to “real-time” measurements of crude demand and supply, the data is notoriously bad (and perhaps, according to some, intentionally manipulated). We pointed this out most recently in early March when we that according to IEA data, crude oil production exceeded consumption by an average of 0.9 million barrels per day in 2014 and 2.0 million bpd in 2015. Of this 1 billion barrels which the IEA said was produced but not consumer, some 420 million are said to be stored on land in OECD member countries and another 75 million can be found stored at sea or in transit by tanker somewhere from the oil fields to the refineries. This means that as of this moment, about 550 million “missing barrels” are unaccounted for “apparently produced but not consumed and not visible in the inventory statistics.”

However, it is not only data at the annual level that is flawed: monthly, and especially weekly data is just as, if not even more distorted. In fact, as Bloomberg’s oil energy analyst Julian Lee asks, “could it be that the U.S. demand that’s helped drive a near doubling of oil prices since mid-February was illusory?”

Lee is referring to a major discrepancy in DoE reporting which through the Energy Information Administration, produces two sets of U.S. demand data that drive sentiment and influence trading. The first shows monthly figures. They’re two months out of date, but they give the most accurate assessment of what’s going on in the world’s largest oil-consuming country.

The second set of numbers come out each Wednesday, giving preliminary estimates for the previous week. For crude markets these weekly figures – though less reliable – are arguably more important, largely because they’re bang up to date.

…click on the above link to read the rest of the article…

Point-Counterpoint: Ethanol

May 29, 2016

The Case for More Ethanol: Why Green Critics Are Wrong

The criticism of ethanol by environmentalists is misguided and just plain wrong. In fact, thanks to improvements in farming techniques, increasing the amount of corn ethanol in U.S. gasoline would reduce air pollution, provide significant health benefits, and lower greenhouse gas emissions. 

For almost as long as there have been cars, gasoline has been the dominant fuel in transportation. But for a host of reasons — environmental, climate change, public health, and economic — the time has come to consider mixing higher blends of biofuels with gasoline. And in the United States, the best source for that biofuel today, surprisingly, is corn.

Such a suggestion will surely elicit cries of protest from the environmental community: A few years ago there was a flood of articles and reports about the allegedly disastrous ecological impacts of growing crops for biofuels. But we believe that ethanol has been unfairly stigmatized in the conventional wisdom and that the reasons for concern about corn ethanol deserve reexamination.

COUNTERPOINT
The Case Against More Ethanol: It’s Simply Bad for Environment

The Case Against More Ethanol: It’s Simply Bad for Environment

The revisionist effort to increase the percentage of ethanol blended with U.S. gasoline continues to ignore the major environmental impacts of growing corn for fuel and how it inevitably leads to higher corn prices, writes economist C. Ford Runge. It remains a bad idea whose time has passed. 
READ MORE

In the U.S., now is the time for that second look. In June, the Environmental Protection Agency will begin a mid-course evaluation of President Obama’s ambitious fuel economy target, established in 2012, to have cars and light trucks reach 54.5 miles per gallon by 2025. Increasing the ethanol blend in gasoline from the current 10 percent to roughly 30 percent would not only help boost gas mileage, it would significantly cut U.S. carbon emissions and air pollution.

…click on the above link to read the rest of the article…

Cheap petrol prices behind us, modest rises predicted to continue: economist

February 9, 2015

Cheap petrol prices behind us, modest rises predicted to continue: economist

Motorists may have seen the last of cheap fuel, with the price of petrol rising for the first time in 10 weeks.

The Australian Institute of Petroleum said the national average petrol price rose four cents per litre last week to 112.6 cents.

The cost to fill up increased even more in the capital cities, rising by as much as 20 cents a litre late last week.

Before the rise petrol had been selling at its lowest price in six years.

CommSec economist Savanth Sebastian said the increase was triggered by a rise in global oil prices as well as the resumption of the discounting cycle.

“The discounting cycle has been essentially non-existent since late last year when fuel prices were sliding,” he said.

“But now we’ve actually seen in the past week that the discounting cycle is back in full force.

Average unleaded prices in past week

  • Sydney 110.6 (up 8.9 cents)
  • Melbourne 107.2 (up 4.6 cents)
  • Brisbane 110.6 (up 7.5 cents)
  • Adelaide 109.2 (up 9.3 cents)
  • Perth 112.1 (up 1.8 cents)
  • Darwin 128.4 (down 0.7 cents)
  • Canberra 117.3 (down 0.3 cents)
  • Hobart 123.0 (down 0.4 cents)

“What that means is we’ve seen in the past few days a huge lift in fuel prices across the capital cities.”

 

…click on the above link to read the rest of the article…

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