Friday, September 16, 2005

The Numbers Are In

I finally had a chance last night to look at the latest weekly statistics from the Energy Information Agency of the DOE, and they tell a remarkable story about the energy impact of Katrina and the effectiveness of prices at stimulating gasoline production and moderating demand. This involves more numbers than you will normally see in this blog, but I would like to point out a few things that I found noteworthy:

  • US crude oil production stands at 4.3 million barrels per day (MBD), down from 5.4 pre-Katrina. You have to go back to the 1940s to find an oil production rate this low.
  • As a result, crude oil inventories fell by 7 million barrels, despite some withdrawals from the SPR. Despite this, crude oil stocks are still above the top of their normal, seasonal range.
  • Although refinery utilization was down by a full 10%, refiners have deftly adjusted yields and made the most of the EPA's specification waiver to get gasoline production back up to almost 8.5 MBD, only about 300,000 bbl/day below where it was before the storm hit. That compares to initial estimates, including mine, of sustained losses of 800,000 bbl/day.
  • Average US retail gasoline prices are back below $3.00/gallon, from a high of $3.06.

The real story here is what happened to gasoline demand. For all the resulting acrimony and political posturing, the price increases did their work. Demand fell by 8% from where it was before the hurricane, and by more than 6% from the same period last year. That's more than twice what you'd expect just from reduced driving in the region most affected by storm damage. As a result, with gasoline imports over a million barrels per day, total US gasoline inventory actually went up slightly to 194 million barrels, the equivalent of 22 days of demand. While still at the bottom of the normal seasonal range, that is excellent news and bodes well for things to continue improving, as long as demand doesn't go back up. (What all this means for heating oil later this year is still not clear, with production down and inventories falling at a time of the year when they should be growing steadily.)

Now, it's easy to read too much into these figures, given the historical variation in the week-to-week data, but things look better than I would have expected this soon after the disaster, particularly with 5 major refineries still down for the count. Anyone who remains skeptical about the power of prices to adjust demand to match supply should study the EIA's figures and charts carefully. I can think of a few politicians who should be assigned this as homework.

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