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Prices Gain Strength Third Quarter 2012 Crude oil prices have rebounded from June lows, rising over the third quarter. The spot price of West Texas Intermediate (WTI) crude has averaged $95 per barrel so far in September, and Brent crude has averaged $112 (Chart 1). In June, WTI averaged $82 and Brent $95. Retail gasoline and diesel prices have been climbing since July. Regular-grade gasoline was $3.85 a gallon at the beginning of September, slightly above year-ago levels (Chart 2). However, the market expects gasoline prices to decline the remainder of 2012 with the end of the summer driving season. For the fourth quarter, the Energy Information Administration (EIA) forecasts an average retail price of $3.58 per gallon. The national average price for diesel was $4.13 a gallon at the beginning of September, a 37-cent increase over the average for June. Chart 1 Crude Oil Prices Rebound from June Lows Dollars per barrel 130 September 2012 estimate 120 110 100 90 80 70 Brent 2011 Brent 2012 WTI 2011 WTI 2012 60 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec SOURCES: Wall Street Journal, Financial Times. Chart 2 Gasoline Prices Rise in August and September World Supply and Demand The latest data available from both the EIA and the International Energy Agency show a very small decrease in the global supply of oil in August versus July. The EIA estimates crude oil production from the Organization of the Petroleum Exporting Countries (OPEC) to be 30.6 million barrels per day (mb/d) for the third quarter, down 0.4 mb/d from the second quarter. Iran’s production was 2.7 mb/d in August, down 0.1 mb/d from July and 0.75 mb/d since the beginning of the year. Most of the production drop from Iran has been offset by increases from Saudi Arabia, Iraq and Libya. Official production numbers may overstate the amount of crude oil available to world markets. Since the imposition of sanctions in July, Iran has been unable to export oil at normal levels. Thus, actual world supply is probably less than official EIA numbers indicate. Dollars per gallon 4.5 4 2012 September 2012 estimate 3.5 2011 3 2007–11 average 2.5 2 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec SOURCE: Energy Information Administration. EIA forecasts intermittent inventory withdrawals through second quarter 2013 (Chart 4). Demand for oil products from countries outside the Organization for Economic Cooperation and Development continues to grow. The rate of growth, however, has slowed. China’s product consumption was particularly weak in the second quarter but recovered somewhat at the beginning of the third. While China’s gasoline consumption is increasing, the country’s consumption of all petroleum products other Worldwide inventories of petroleum products are decreas- than gasoline appears to have declined in recent months ing as a result of consumption exceeding production. The (Chart 5). Gasoline consumption makes up about 20 percent of China’s total consumption, so increases in gasoline Due to seasonal factors that include the summer driving season in the Northern Hemisphere and higher consumption in the Middle East for electricity generation, global demand for oil products generally increases in the third quarter. In August, world consumption of petroleum was 89.48 mb/d, while production was only 88.55 (Chart 3). Federal Reserve Bank of Dallas Quarterly Energy Update 1 Chart 3 World Consumption Exceeds Production in Third Quarter The EIA cites retail gasoline price increases and more-fuelefficient vehicles as reasons for the decrease and forecasts almost flat year-over-year gasoline consumption for 2012. Million barrels/day 92 91 Natural Gas Prices and Inventories 90 At the beginning of September, the Henry Hub natural gas spot price was $2.78 per million Btu (MMBtu). Natural gas prices are up slightly from the second-quarter average of $2.28 per MMBtu but remain low. 89 88 87 86 85 84 83 Petroleum production Production forecast Petroleum consumption Consumption forecast 82 Jan-11 May-11 Sep-11 Jan-12 May-12 SOURCE: Energy Information Administration. Sep-12 Jan-13 May-13 Sep-13 Chart 4 Change in Petroleum Inventories Negative for Rest of 2012 Generally, natural gas inventories rise in the summer, but the rate of increase in the third quarter is significantly lower than it was in previous years. Higher demand in August due to relatively high temperatures, and slower supply increases due to low prices, combined to cause the reduced rate of inventory increases. However, inventories remain 13 percent above year-ago levels (Chart 7). —Amy Jordan and Michael Plante Million barrels/day 2.5 ……………………………………………………………………………………………… 2 1.5 About the Authors 1 Jordan is a research analyst and Plante is a research economist in the Research Department at the Federal Reserve Bank of Dallas. 0.5 0 -0.5 -1 -1.5 Change in inventories Forecast change -2 -2.5 -3 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 NOTE: Includes inventories of crude oil, natural gas liquids and petroleum products. SOURCE: Energy Information Administration. Million barrels/day 9.4 9.2 August 2012 preliminary 2007-11 average 9 Chart 5 China Sees Slower Growth in Petroleum Products Consumption Percent change, year/year 20 15 Chart 6 U.S. Gasoline Demand Strengthens in August 8.8 July 2012 preliminary 8.6 All products Gasoline All products besides gasoline 2011 8.4 2012 8.2 10 8 Jan Feb Mar Apr May Jun SOURCE: Energy Information Administration. 5 Jul Aug Sep Oct Nov Dec Chart 7 Surplus in Natural Gas Inventories Continues to Shrink 0 Percent change, year/year 70 60 -5 2011 avg. Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 SOURCES: Bloomberg; calculations by the Federal Reserve Bank of Dallas. Jul-12 consumption have not always led to increases in the consumption of all products. 50 40 30 20 U.S. Demand 10 Gasoline demand in the U.S. dropped in July but rebounded in August (Chart 6). While the preliminary data for July and August are subject to revision, actual average gasoline demand for the first half of 2012, 18.5 mb/d, was 0.4 mb/d lower than the average for the first half of 2011. Federal Reserve Bank of Dallas 0 -10 -20 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 SOURCES: Energy Information Administration; calculations by the Federal Reserve Bank of Dallas. Quarterly Energy Update 2