July 2007 Archives

If seismometers in the Washington, DC, area registered a slight tremor July 30, it may have been caused when the Democratic leaders of the US House of Representatives dropped a massive 786 page energy bill into the legislative hopper.

The leadership is finally delivering this elephantine bill after hammering out compromises with conservative and moderate Democrats who were concerned about its adverse impact domestic energy production. The bill is expected to be on the House floor August 3, the last day the House is scheduled to be in session before departing for a month-long summer recess. Which doesn't allow much time for careful deliberation and thoughtful debate, although that would hardly set a precedent.

Refining turned from the neglected stepchild to the beauty queen of the oil industry during the past five years, as growing US and global demand for transportation fuels and ever-tightening quality specifications raced ahead of refinery capacity.

Of course, nothing cures high prices like high prices (as the hackneyed saying goes), and refiners ramped up their expansion plans to take advantage of the strong crack spreads.

WTI futures are in backwardation, front-month WTI has moved back above Brent, the RBOB crack spread is down below $12/barrel -- in other words, all is well with the world.

Now that the dust is settling, it appears that the dire warnings of $4/gal gasoline this summer and a broken WTI contract were perhaps a tad overdone.

Energy was part of the Democratic Presidential debate Monday night, though like most issues besides Iraq, the policy declarations of eight candidates -- Clinton, Obama, Edwards, Kucinich, Biden, Gravel, Dodd and Richardson --tend to fill up the time quickly and not leave a lot of room for discussion of other issues, such as energy. So The Barrel will summarize.

Estimating demand is always tricky. In the US, the one barometer that many people swear by are figures on how much in gasoline excise taxes were collected by the federal government. The problem is that there is a significant lag in that data, so it's not particularly timely. But the theory is that every gallon of gasoline purchased must pay that federal tax, so it is an extremely accurate picture of demand.

Such information is particularly relevant now, since there has been a long-running debate everywhere in the world, but particularly in the US, whether higher oil prices and the resultant rise in gasoline prices is reducing demand.

The not-so-sterling reputation of the oil industry took another hit Friday, amid news reports that the FBI had accused two heating oil delivery companies in New York City of charging customers for more oil than was actually delivered.

Now the companies involved, Mystic Tank Lines and T&S Trucking Corporation, are small potatoes, and few people outside the New York area will likely pay any attention. However, against the backdrop of a political climate that features Congress grilling energy company executives, constant talk of price-gouging legislation and increased taxes on excess oil company profits, the industry didn't need another black eye.

In a recent posting, The Barrel noted that the claim of executive privilege shielding the work of Vice President Cheney's 2001 energy task force from public scrutiny remains in place, despite Cheney's (short-lived) denial that his office is part of the Executive Branch.

Nearly two years in the making and a good five inches thick -- even using double-sided printing -- the National Petroleum Council's new report, released today, trods again on some very well-worn ground.

Like a number of groups before it, the NPC, an panel formed in the 1940s to give advice to the government on energy issues, found that if the US moves quickly to limit demand through conservation and efficiency, addresses climate change and boosts and diversifies supply, it will probably have enough energy--at affordable prices--to meet growing demand in the coming decades.

There really is a Cushing, Oklahoma. I've been working at Platts for more than 20 years, have always vowed that someday I'd visit there, and still have failed to do so. Someday.....

Not only is there a town of Cushing, there's a daily newspaper in Cushing. A quick search of the archives didn't turn up too much about the steep contango of earlier this year. In fact, the word contango doesn't turn up once.

US gasoline prices soared during the second quarter of 2007, as refinery outages sparked supply fears heading into peak driving season.

Well, those fears sure went away in a hurry. The August RBOB crack spread (the difference between RBOB and crude futures on the New York Mercantile Exchange) has tumbled from $26.70/barrel on July 10 to $14.02/barrel Tuesday.

Crude distillation units at major refineries such as BP's Whiting, Indiana and ExxonMobil's Beaumont, Texas plants have restarted, and a coker at Beaumont is set to restart as well. What does this mean for the market? Greater crude demand, and higher gasoline production.

When Republican Florida Governor Charlie Crist signed an executive order last week adopting California's motor vehicle greenhouse gas emissions standard, it brought to 15 the number of states to do so, or prepared to do so. Starting in 2009, California would require a 22% reduction in GHG emissions from new motor vehicles by 2012, and a 30% reduction by 2016.

It's hardly a nationwide movement, but formidable nevertheless. The 15 states include virtually the entire Northeast: New York, Pennsylvania, New Jersey, Massachusetts, Connecticut, Rhode Island, Vermont, Maine and Maryland; the entire West Coast: California, Oregon and Washington; and Arizona, New Mexico and Florida.

Several months ago, The Barrel sat in on a session at the spring meeting of the Society of Independent Gasoline Marketers of America in which the topic of temperature compensation was discussed.

Gasoline marketers at the meeting were not happy about the prospect of needing to install new equipment to adjust for the fact that at warmer temperatures, gasoline expands and the amount of energy delivered in a gallon is reduced. So what a retail pump measures as a gallon in summer does not necessarily contain the same volume of gasoline as in winter. In just about a year, it had become a significant consumer issue, spurred in part by reporting in The Kansas City Star, which raised the specter that consumers were being ripped off.

The Barrel recently gave a presentation about supply trends, and likened the formal Venezuelan statements on the country's production to the proclamations of Baghdad Bob, the Iraqi government spokesman who would declare that "there are no American infidels in Baghdad!" even as TV cameras would record the movements of US troops off in the distance, right over his shoulder.

The Venezuela government repeatedly claims production of well over 3 million b/d, which nobody believes. Platts' latest monthly survey of OPEC production, released July 11, shows Venezuelan output at 2.4 million b/d. Other independent estimates are in line with that.

Peter Rodgers is a long-time Washington attorney who has specialized in energy and environmental issues at the Washington law firm of Sutherland Asbill & Brennan. He has written an essay on why price-gouging legislation should be avoided, even as it makes its way through the US Congress. The Barrel would like to turn over some of its space here to key excerpts from his piece.

One of the most interesting aspects of it is in the last paragraph, where Mr. Rodgers mentions a windfall profits tax without condemning it prima facie, as might be expected. But his primary ire is targeted at Bart Stupak's price-gouging legislation.

There was little of note in this week's EIA data, other than another crude draw in Cushing, Oklahoma, which fell by 900,000 to 22.8 million barrels. Stocks at the NYMEX crude contract delivery point have now fallen for seven weeks in a row, and are at their lowest level since March.

The draw should lead to further tightening of the August/September WTI spread, which strengthened by four cents to -$0.35/barrel following the data release. But gains could be limited, as problems at Coffeyville, Kansas and Whiting, Indiana refineries could limit crude demand in that region, resulting in a stock build in next week's report.

Oil demand growth is accelerating, non-OPEC supply growth will recede in a couple of years' time, and OPEC spare capacity will be "minimal." In other words, the world faces an oil suppply crunch by 2012, according to the International Energy Agency's 2007 Medium-Term Oil Market Report which was released today.

"It is possible that the supply crunch could be deferred -- but not by much," the Agency says, noting that its demand forecast, which is derived from OECD and International Monetary Fund projections, assumes average annual global economic growth of 4.5%, and allowing for the possibility that this could be lower.

The battle for the Chicago Board of Trade sometimes seems like it should be on Page 6 of the New York Post, rather than the business section.

Just when you thought everyone's favorite futures exchange melodrama was heading into its final act, Intercontinental Exchange stepped up the pressure on the Chicago Board of Trade Tuesday with a letter to CBOT that hinted ICE might be willing to sweeten the pot further.

It's been six years since Vice President Richard Cheney's energy task force provided the blueprint for the Bush administration's energy policy. Critics of the task force contended it was too reliant on input from industry officials. The administration's energy plan was "weighted on behalf of those who had special access," Representative John Dingell, Democrat-Michigan, said.

What makes the task force an object of interest and curiosity is that its actual day-to-day work, including minutes of meetings, who it met with, and the recommendations it accepted or rejected, are kept from public scrutiny by Cheney's claim of executive privilege.

According to the Department of Transportation's General Counsel, it was legal for the the agency to "inform" members of Congress about California's request for an Environmental Protection Agency waiver to control greenhouse gas emissions from motor vehicles. It didn't violate federal anti-lobbying restrictions, nor was it an improper use of appropriated funds for "publicity or propaganda purposes."

However, without the benefit of learned counsel, and relying, instead, on plain dictionary definitions, let's consider what the agency did: It sought to influence specific public officials to take a desired action (lobbying); through the propagation of information reflecting the views and interests of those advocating such an action (propaganda); and by issuing a message in behalf of some cause or idea (publicity).