So We Drive On

Monday, July 10, 2006

Petroleum and Natural Gas Watch, Vol. 5, Number 1
by Michael Vickerman, RENEW Wisconsin
July 10, 2006

Every week (usually on Wednesdays) the U.S. Energy Information Agency releases a status report of the nation’s fuel inventories. These weekly updates are rich in detail: refinery inputs and outputs, crude oil inventories, gasoline inventories, net imports (crude and finished products), and fuel prices (wholesale and retail). Without doubt the EIA’s weekly report is the most meaningful indicator of energy price movement in the days ahead.

In addition to the week-by-week fluctuations in fuel supplies, the report also tabulates a four-week moving average of demand for finished products, broken down by fuel type. In recent weeks, energy markets have been keying on those numbers, which show that energy demand in 2006 is running ahead of the same four-week average in 2005. Small wonder, then, that fuel prices are also trending upward.

The report issued for the week ending June 30 follows the pattern that’s been in place since May. Demand for motor gasoline is up 1.4% relative to last year, and the same holds true for both distillate fuels (1.8%) and jet fuel (3.3%). Yet at the same time the report reveals bulging inventories of crude oil and ample supplies of gasoline. So why do energy traders and speculators fixate on the demand figures and disregard the supply numbers?

The answer is simple: the world has virtually no spare capacity left to meet any growth in demand for liquid hydrocarbons. Even though the volume of liquid fuels (including ethanol and biodiesel) produced worldwide has never been higher, it is not enough to slake our prodigious thirst for these wondrously energetic substances. And there is plenty of evidence to suggest that world’s leading exporters of crude oil and refined fuels will not be able to ratchet up the number of barrels they now sell to importing nations.

What this means is that unless the demand for transportation fuels actually changes direction and heads downward, prices have nowhere to go up. But is the U.S. leadership class talking about demand reduction, as measured in barrels of oil and motor gasoline? Why no, that would be unthinkable.

Instead, we are told via the mainstream media that high price of energy is the greater scourge. Unfortunately, there seems to be an endless supply of officials and commentators on tap to inveigh against the high cost of motoring and pitch their latest cure-all, whether it’s more drilling on federal lands and over federal waters, bigger tax credits for hybrid cars, or rolling back state gasoline taxes. As long as we Americans remain hung up on energy prices and not on the larger issues of energy sustainability and security, the policy remedies and infrastructure improvements that might actually make a dent in our supersized energy appetite will never leave the drawing board.

In the current political environment, the only thing that can bring about a more serious discussion of our energy predicament and--dare I dream it--a forward-looking set of federal policies is the economic pain that will come with gasoline prices breaching the $5.00 per gallon mark. Absent that stimulus, the likelihood that American motorists will somehow summon the self-discipline necessary to limit fuel consumption is extremely low, while the odds of discovering new and vast energy reserves to bail us out of our impending date with the global energy bottleneck are slimmer yet.

To paraphrase F. Scott Fitzgerald’s closing line in The Great Gatsby: So we drive on, fuel tanks running low, sucking dry the wealth of the past.

Sources:

Energy Information Agency: Weekly Petroleum Status Report (week of June 30, 2006)

Petroleum and Natural Gas Watch is a RENEW Wisconsin initiative tracking the supply demand equation for these fossil fuels, and analyzing its effects on prices, consumption levels, and the development of energy conservation strategies and renewable energy alternatives. For more information on the global and national petroleum and natural gas supply picture, visit "The End of Cheap Oil" section in RENEW Wisconsin's web site.