US just one market shock away from fuel crisis

15 May 2007 21:35  [Source: ICIS news]

WASHINGTON (ICIS news)--Government and private sector energy experts warned Congress on Tuesday that the US is only one major market incident away from a gasoline crisis and that underlying high crude oil costs likely will continue for years.

 

At a hearing before the Senate Energy and Natural Resources Committee called to investigate record high prices for US gasoline, Deutsche Bank managing director and energy authority Paul Sankey said the simple reason for high prices “is the lack of global gasoline supply relative to demand”.

 

US gasoline prices reached a record average high of $3.10/gal yesterday, according to the US Department of Energy.  High fuel prices affect US consumer confidence and spending, which in turn affects a variety of upstream industries, including chemicals manufacturing.

 

“Anybody who blames record high US gasoline prices on ‘gouging’ at the pump simply reveals their total ignorance of global oil supply and demand fundamentals,” Sankey told the panel.

 

“Just in the US, overall US refining capacity, at 17m bbls/day, is far below demand at 22m bbls/day,” Sankey noted, meaning that “pump prices are effectively set by import prices.”

 

“With strong demand outside the US on the back of global economic growth and a weak dollar, the era of abundant US oil supply augmented by willing international sellers is dead,” he said.

 

With growing US automotive fuel demand and increasing competition for and limited availability of global refined product supplies, he said, the US is near a gasoline crisis point.

 

“There is now US gasoline inventory, at record lows, for just 20 days of consumption,” Sankey said, adding: “It is fair to say that as we enter the [North American summer] driving season in 2007, we are one major incident away from a 1970s-style gasoline crisis.”

 

Guy Caruso, head of the US Energy Information Administration, said that underlying tightness in global oil markets is likely to continue for several years.  He cited continued growth in oil demand worldwide, little growth in crude supply outside of the member nations of the Organization of Petroleum Exporting Countries (OPEC), and continued production restraints by OPEC producers.

By: Joe Kamalick
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