PHOTO: Flickr/Pete Markham
I woke up this morning to the news that gas prices had gone up by 27 cents this past month and yet I had just written an article a couple of weeks ago that included a quote from Robert Dudley, chief executive of oil giant BP PLC, saying that,
“every storage tank and swimming pool in the world will soon be filled with oil.”
I couldn’t square these two facts and as I work in the logistics industry that so utterly depends on affordable fuel prices I decided to do some digging of my own to see if I could figure out what was going on.
Where Did 800,000 Barrels of Oil Go?
One of the first things I came across was an article from the Wall Street Journal titled “Crude Mystery: Where Did 800,000 Barrels of Oil Go?”
If that didn’t get your attention maybe this will – the International Energy Agency (IEA) is referring to 800,000 barrels of oil a day that went missing last year! Currently oil production worldwide is running at 96 million barrels per day so it puts the missing barrels in context somewhat but even so that’s a lot of oil to go missing!
Analysts disagree on where this oil has gone. Apparently calculating global oil supply, demand and stored inventory is a non-exact science and these missing barrels may just be a statistical blip. Investment bank DNB markets thinks otherwise. Half of global oil demand now comes from outside of the Organization for Economic Cooperation and Development (OECD), where statistical gathering isn’t as well developed.
“We hence suspect that demand in non-OECD in reality is meaningfully larger than what is reported by the IEA.”
The Answer Is Nobody Knows!
In IEA’s latest Oil Market Report they pretty much fudge the issue saying it is well within normal tolerances.
“We have also re-analysed our data for floating storage and oil in transit and further reduced the uncertainty in the supply/demand balance that is described as “missing barrels”. The figure usually described as such is now 0.8 mb/d, well within the normal range considering the vagaries of oil data.”
So the general consensus is that 800,000 missing barrels of oil has not tightened the market and hasn’t impacted the price we pay for gas at the pump. So what is hiking the price’s up?
Blame It on the Russians!
The answer I believe can be found in this article from NPR. Refineries are stopping for maintenance and switching over from the winter blends to the more expensive warm weather blends.
“Swings in gas prices at the regional level are typical for this time of year as many refineries conduct maintenance in advance of the busy summer driving season,” AAA, the auto club, said in its weekly analysis.
But it’s not just seasonal factors in play here, crude oil prices are increasing. Saudi Arabia, Qatar, Venezuela and Russia formed a global oil coalition and said they would freeze oil output at January levels.
So far, the “freeze” has held, allowing benchmark prices to rise to around $34 a barrel, up from last month’s low of about $26. “By announcing a production freeze, the global oil coalition has set a floor under oil prices,” ABN Amro said in a report.
So we can blame it on the Russians! Even so the outlook is relatively good for fuel prices. The US energy Department predicts that the national average will peak at $2.08 from June through August. Remember that from 2011 to 2014, the national average on June 1 was $3.60, with many cities seeing prices over $4!
That’s good enough for me, I’ll take it wherever I can get it. But it’s cold comfort to those owner/operators running their big rigs at 6.5 miles per gallon. The sooner we get these trucks on the road the better for the trucking industry. Yet another reason why you might want to consider long-haul shipping by rail and short-haul by truck. Trains can move a ton of freight over 480 miles on a single gallon of fuel!