Summer gas supply looks tight
CARROLL; Bloomberg News
The News Tribune
May 12, 2004
ConocoPhillips, the largest U.S. oil refiner, is producing as much
gasoline as it can, and Valero Energy Corp.'s 15 plants are processing
20 percent more crude oil than a year ago.
They aren't keeping up with demand.
Gasoline futures are close to the highest in 20 years of New York
trading, and retail prices have been at a record for six weeks. Drivers
are burning fuel at the fastest pace in at least five years, and stored
reserves are as much as 16 percent below normal in some regions.
Supplies may run short this summer when vacationers hit the road and
push demand to a peak, Valero CEO Bill Greehey said last month.
"We could be in for a nightmare," said John Saxon, 47, product-supply
manager at Haycock Petroleum, which supplies fuel to 47 filling stations
in Las Vegas and Salt Lake City. "We're in uncharted water with
gasoline. Supplies are going to stay pretty tight for the foreseeable
The U.S. average gasoline pump price jumped 9.7 cents, or 5.3 percent,
in the past week to $1.94 a gallon, the sixth all-time high in seven
weeks, the Energy Department said Monday.
The high prices aren't limited to the United States: Filling stations
in the Vancouver, B.C., area are charging 97.5 Canadian cents per
liter, or the equivalent of $2.65 a gallon.
Crude oil prices, which touched $40 a barrel on Friday in New York,
on Monday slid 2.5 percent to $38.93 after Saudi oil minister Ali
al-Naimi called on OPEC to increase output quotas by at least 6.4
percent. Gasoline futures fell 3.2 percent to $1.2963 a gallon.
Crude-oil supplies in the United States are up 4 percent from a year
ago after rising in nine of the past 10 weekly reports by the U.S.
Energy Department. Gasoline supplies are down 1.8 percent.
"There is plenty of oil on world markets," ConocoPhillips
CEO James Mulva said last week at a meeting with reporters. "It's
a question of limited refining capacity."
No one has built a new refinery in the United States since 1976, even
as surging fuel demand swells refining profits, because of daunting
environmental hurdles, said Mulva, 57.
"Our company and the industry as a whole are running at full
capacity to meet consumer demand," he said. "Supply and
demand are very tightly balanced."
Futures prices fell Monday on speculation an influx of additional
oil onto global markets could spur refiners in Europe and Asia to
produce more fuel for the United States, said Steve Enger, an analyst
at Denver-based Petrie Parkman & Co., which has done investment
banking for Marathon Oil Corp., Premcor Inc. and Frontier Oil Corp.
"The thinking is that if OPEC and the Saudis in particular are
keen on increasing oil supplies, then gains in fuel inventories will
follow," Enger said. "The tough question with regard to
the U.S. market is if there's some place available to refine"
additional crude supplies.
Sen. John Kerry of Massachusetts, Democratic candidate for president,
has said oil destined for the Strategic Petroleum Reserve should be
released to the market to lower prices. He also has said the Bush
administration should pressure OPEC to pump more.
U.S. Energy Secretary Spencer Abraham last week said Democrats in
Congress who want to tap the reserve should instead pass the energy
bill President Bush backs to help boost drilling.
Gasoline consumption is rising at a time of year when it usually declines,
hindering efforts by refiners and wholesalers to build reserves for
July and August, the period of highest gasoline needs.
Inventories normally rise by 12.2 million barrels from a first-quarter
low to 215 million barrels by the second week of June, based on 10-year
Inventories bottomed out this year at 197 million barrels on April
9. If refiners stockpile fuel at the historical rate, reserves will
only reach 209.2 million before summer, 5.8 percent below the 10-year
Fuel producers and wholesalers had 204 million barrels of gasoline
on hand at the end of April, the most recent figures available from
the Energy Department.
Houston-based ConocoPhillips, which produces 16 percent of the nation's
gasoline, had record profit of $1.62 billion in the first quarter
after Mulva boosted operating rates at the company's 12 refineries
to 97 percent from 93 percent a year earlier.
Exxon Mobil Corp., the second-biggest U.S. refiner, had its highest
first-quarter refining profit in 13 years. San Antonio-based Valero,
the No. 3 refiner, had a 46 percent surge in first-quarter income.
In California, the biggest gasoline-consuming state, prices are up
16 percent in the past year to $2.245 a gallon, a state record, AAA
said. Washington state's average price is $2.127 a gallon, fifth-highest
in the nation.
Prices around the Sound
Monday's gas prices again hit records around Puget Sound:
Washington state average: $2.127
SOURCE: AAA Washington,
per gallon of unleaded regular