Today's This Week in Petroleum articles were originally published throughout 2019. New feature articles of This Week in Petroleum will return on January 8, 2020. The retail price and inventory paragraphs, charts, and tables accompanying the feature article have been updated to reflect data from the latest Weekly Petroleum Status Report for the week ending December 27, 2019.
On Friday, June 21, the Philadelphia Energy Solutions (PES) 335,000 barrels per day (b/d) refinery in South Philadelphia experienced a major fire and explosion. The resulting damage to the refinery and preexisting financial strains led PES to announce its intention to shut down operations at the refinery. The closure of the Philadelphia refinery would decrease the number of operating East Coast refineries to seven and total operating capacity to 889,000 b/d (Figure 1). The U.S. Energy Information Administration (EIA) estimates closing the Philadelphia refinery would reduce East Coast gasoline supplies by approximately 160,000 b/d and distillate supplies by approximately 100,000 b/d. The potential shutdown of the largest refinery by capacity on the U.S. East Coast is likely to reconfigure petroleum product supply chains in the Central Atlantic.
(Published: July 17, 2019) The crude oil adjustment accounts for differences in supply and disposition
The U.S. Energy Information Administration's (EIA) Weekly Petroleum Status Report (WPSR) provides weekly estimates of U.S. crude oil supply, including a measure of how well the supply of crude oil and the disposition of crude oil balance with each other. This measure—referred to as the adjustment—is a derived term equal to the difference between supply and disposition. If the reported supply and disposition of crude oil balanced perfectly each week, the adjustment would equal zero. For several reasons, however, this is rarely the case.
(Published: September 18, 2019) Saudi Arabia crude oil production outage will affect global oil markets and U.S. gasoline prices
On Saturday, September 14, 2019, an attack damaged the Saudi Aramco Abqaiq oil processing facility and the Khurais oil field in eastern Saudi Arabia. The Abqaiq oil processing facility is the world's largest crude oil processing and stabilization plant with a capacity of 7 million barrels per day (b/d), equivalent to about 7% of global crude oil production capacity. On Monday, September 16, 2019, the first full day of trading after the attack, Brent and West Texas Intermediate (WTI) crude oil prices experienced the largest single day price increase since August 21, 2008 and June 29, 2012, respectively.
(Published: November 6, 2019) Changing nature of non-OPEC supply types may be affecting the crude oil futures market
Changes in the oil investment and production cycle may be affecting trading dynamics for West Texas Intermediate (WTI) and Brent crude oil futures contracts. Many U.S. producers that may have traditionally hedged production years in advance may now only need to hedge using short-dated portions of the futures curve. Many domestic producers have shifted their production portfolios toward tight oil production, which has a short investment and production cycle, and could be reducing their participation in long-dated WTI futures. For example, the ratio of open interest for WTI contract months 13 and longer to current U.S. monthly production has declined since 2013. In contrast, as of October 2019, a similar ratio for Brent crude oil to production outside the Organization of the Petroleum Exporting Countries (OPEC) and the United States increased to its third-highest level, suggesting increased liquidity in long-dated Brent futures (Figure 1). Brent is the relevant crude oil benchmark used among non-OPEC, non-U.S. oil producers. Similar research from the research from the U.S. Commodity Futures Trading Commission (CFTC) published last year suggests the lower open interest among long-dated WTI futures contracts is a result of the changing investment and production cycle for U.S. oil production. In contrast, new upstream projects outside the United States are primarily deepwater projects, which have a long investment and production horizon. These qualities could be contributing to increased participation in the long-dated portion of the Brent future curve.
(Published: December 4, 2019) September was the first month the United States recorded exporting more petroleum than it imported
In September 2019, the United States exported 89,000 barrels per day (b/d) more petroleum (crude oil and petroleum products) than it imported, the first month this happened since monthly records began in 1973 (Figure 1).
U.S. average regular gasoline and diesel prices increase
The U.S. average regular gasoline retail price rose nearly 4 cents from the previous week to $2.57 per gallon on December 30, 31 cents higher than the same time last year. The Gulf Coast price rose nearly 7 cents to $2.28 per gallon, the Midwest price increased nearly 5 cents to $2.45 per gallon, and the East Coast price rose nearly 4 cents to $2.50 per gallon. The Rocky Mountain price fell nearly 3 cents to $2.66 per gallon, and the West Coast price fell nearly 1 cent to $3.22 per gallon.
The U.S. average diesel fuel price rose nearly 3 cents from the previous week to $3.07 per gallon on December 30, 2 cents higher than a year ago. The Gulf Coast price increased nearly 5 cents to $2.81 per gallon, the East Coast price rose more than 4 cents to $3.10 per gallon, the West Coast price increased nearly 3 cents to $3.62 per gallon, and the Midwest price increased 1 cent to $2.98 per gallon. The Rocky Mountain price fell more than 1 cent to $3.11 per gallon.
Propane/propylene inventories decline slightly
U.S. propane/propylene stocks decreased by 0.2 million barrels last week to 88.2 million barrels as of December 27, 2019, 8.1 million barrels (10.1%) greater than the five-year (2014-2018) average inventory levels for this same time of year. Midwest and Rocky Mountain/West Coast inventories decreased by 0.3 million barrels and 0.1 million barrels, respectively. East Coast inventories increased by 0.2 million barrels, and Gulf Coast inventories increased slightly, remaining virtually unchanged. Propylene non-fuel-use inventories represented 6.8% of total propane/propylene inventories.
Residential heating oil prices increase, propane prices decrease
As of December 30, 2019, residential heating oil prices averaged almost $3.08 per gallon, more than 2 cents per gallon above last week’s price but more than 2 cents per gallon below last year’s price at this time. Wholesale heating oil prices averaged nearly $2.16 per gallon, almost 3 cents per gallon higher than last week’s price and more than 38 cents per gallon higher than a year ago.
Residential propane prices averaged nearly $2.02 per gallon, less than 1 cent per gallon below last week’s price and almost 42 cents per gallon less than a year ago. Wholesale propane prices averaged more than $0.71 per gallon, almost 6 cents per gallon lower than last week’s price and more than 8 cents per gallon below last year’s price.
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Headline crude prices for the week beginning 13 January 2020 – Brent: US$64/b; WTI: US$59/b
Headlines of the week
Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2020
In its latest Short-Term Energy Outlook (STEO), released on January 14, the U.S. Energy Information Administration (EIA) forecasts that generation from natural gas-fired power plants in the electric power sector will grow by 1.3% in 2020. This growth rate would be the slowest growth rate in natural gas generation since 2017. EIA forecasts that generation from nonhydropower renewable energy sources, such as solar and wind, will grow by 15% in 2020—the fastest rate in four years. Forecast generation from coal-fired power plants declines by 13% in 2020.
During the past decade, the electric power sector has been retiring coal-fired generation plants while adding more natural gas generating capacity. In 2019, EIA estimates that 12.7 gigawatts (GW) of coal-fired capacity in the United States was retired, equivalent to 5% of the total existing coal-fired capacity at the beginning of the year. An additional 5.8 GW of U.S. coal capacity is scheduled to retire in 2020, contributing to a forecast 13% decline in coal-fired generation this year. In contrast, EIA estimates that the electric power sector has added or plans to add 11.4 GW of capacity at natural gas combined-cycle power plants in 2019 and 2020.
Generating capacity fueled by renewable energy sources, especially solar and wind, has increased steadily in recent years. EIA expects the U.S. electric power sector will add 19.3 GW of new utility-scale solar capacity in 2019 and 2020, a 65% increase from 2018 capacity levels. EIA expects a 32% increase of new wind capacity—or nearly 30 GW—to be installed in 2019 and 2020. Much of this new renewables capacity comes online at the end of the year, which affects generation trends in the following year.
Forecast generation mix varies in each of the 11 STEO electricity supply regions. A large proportion of the retired coal-fired capacity is located in the mid-Atlantic area, where PJM manages the dispatch of electricity. EIA forecasts that coal generation in the mid-Atlantic will decline by 37 billion kilowatthours (kWh) in 2020. Some of this decline is offset by more generation from mid-Atlantic natural gas-fired power plants; EIA expects generation from these plants to grow by 23 billion kWh.
Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2020
In the Midwest, where the Midcontinent ISO (MISO) manages electricity, EIA expects coal generation to fall in 2020 by 33 billion kWh. This decline is offset by an increase in natural gas electricity generation (12 billion kWh) and by nonhydropower renewable energy sources (13 billion kWh). The regional increase in renewables is primarily a result of new wind generating capacity.
The electric power sector in the area of Texas managed by the Electric Reliability Council of Texas (ERCOT) is planning to see large increases in generating capacity from both wind and solar. EIA expects this new capacity will increase generation from nonhydropower renewable energy sources by 24 billion kWh this year. EIA expects the increased ERCOT renewable generation will lead to a regional decline of natural gas-fired generation and coal generation of 14 billion kWh for each fuel source in 2020.
EIA expects these trends to continue into 2021. EIA forecasts U.S. generation from nonhydropower renewable energy sources will grow by 17% next year as the electric power sector continues expanding solar and wind capacity. This increase in renewables, along with forecast increases in natural gas fuel costs, contributes to EIA’s forecast of a 2.3% decline in natural gas-fired generation in 2021. U.S. coal generation in 2021 is forecast to fall by 3.2%.