This Week in Petroleum – Effects of removing crude export restrictions depend on price and resource assumptions (September 2, 2015)

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This Week in Petroleum

Release date: September 2, 2015  |  Next release date: September 10, 2015

 

Effects of removing crude export restrictions depend on price and resource assumptions

The recent rise in domestic crude oil production from 5.4 million barrels per day (b/d) in 2009 to 8.7 million b/d in 2014 and the prospect of continued supply growth have sparked interest in the question of how a change in current policies, which restrict but do not ban exports of crude oil produced in the United States, might affect markets for both crude oil and petroleum products over the next decade.

new study by the U.S. Energy Information Administration (EIA) on the potential implications of removing restrictions on crude oil exports finds that effects on domestic crude oil production are key to determining the other effects of the policy change. Gasoline prices would be either unchanged or slightly reduced. The report also examines the implications of removing current restrictions on the price of domestic and global marker crude oil streams, domestic refining activity, and trade in crude oil and petroleum products.

The analysis, which builds on and extends previous studies and activities related to the implications of growing domestic crude production that EIA has undertaken since May 2014, uses cases based on EIA’s Annual Energy Outlook 2015 (AEO2015) that incorporate a range of assumptions regarding domestic resource availability and world oil prices. Each of the four cases is run in a baseline version, reflecting current policies that restrict, but do not entirely ban, crude oil exports, and in an alternative version without any crude oil export restrictions.

The modeling finds no difference between projections with and without current export restrictions in two analysis cases in which projected production with current export restrictions remains below 10.6 million b/d over the next decade. However, in two other cases where domestic production in 2025 ranges between 11.7 million b/d and 13.6 million b/d, projections without export restrictions show increased domestic production, higher crude exports, reduced product exports, and slightly lower gasoline prices to U.S. consumers compared with cases that maintain current crude oil export restrictions.

Domestic crude production: The variation in projected production levels across the four baseline cases used in the report reflects differences in the characterization of oil resources and technology as well as future crude oil prices. There is a considerable spread in projected domestic production across these cases (Figure 1). The left-hand panel of Figure 1 shows the differing levels of crude production across the four baseline cases. The right-hand panel shows that removal of current crude export restrictions does not lead to additional production in the Reference and Low Oil Price cases, where production remains below 10.6 million b/d through 2025. However, the removal of crude export restrictions leads to additional production of between 0.4 million b/d and 0.5 million b/d by 2025 in the High Oil and Gas Resource (HOGR) and High Oil and Gas Resource / Low Oil Price (HOGR/LP) cases. These two cases have significantly higher baseline production because of more optimistic resource and technology assumptions.

U.S. gasoline prices: Petroleum product prices in the United States, including gasoline prices, would be either unchanged or slightly reduced by the removal of current restrictions on crude oil exports. As shown in a previous EIA report, petroleum product prices throughout the United States have a much stronger relationship to North Sea Brent, an international crude oil benchmark price, than to West Texas Intermediate (WTI), a domestic benchmark price.

In the high production cases considered in this study (HOGR and HOGR/LP), the elimination of current restrictions on crude oil exports narrows the Brent-WTI spread by raising the WTI price. As domestic producers respond to the higher WTI price with higher production, the global supply/demand balance becomes looser (more supply in relation to demand) unless increased domestic production is fully offset by production cuts elsewhere. The looser balance implies lower Brent prices, which in turn results in lower petroleum product prices for U.S. consumers.

Trade in crude oil and petroleum products: Combined net exports of crude oil and petroleum products from the United States are generally higher in cases with higher levels of U.S. crude oil production regardless of U.S. crude oil export policies. However, crude oil export policies materially affect the mix of crude oil and petroleum product exports, particularly in the HOGR and HOGR/LP cases, which have high levels of domestic production. Crude oil exports tend to represent a larger share of combined crude oil and petroleum product exports in cases in which crude oil exports are unrestricted, as shown in Figure 2. Also, in cases where the level of domestic crude production increases with the removal of crude oil export restrictions, total combined crude and product exports are higher than in similar cases with current crude oil export restrictions in place.

Unrestricted exports of U.S. crude oil would leave global crude prices either unchanged or falling slightly compared to parallel cases that maintain current restrictions on crude oil exports. Other factors affecting global supply and demand will largely determine whether global crude prices remain close to their current level, as in EIA’s Low Price case, or rise along a path closer to the Reference case trajectory. Global price drivers, as well as resource and technology outcomes, will affect growth in U.S. crude oil production regardless of decisions about future U.S. crude oil export policies.

EIA’s full report provides additional insight into implications for domestic refinery capacity and operations as well as upstream producers. It also identifies key factors and assumptions that affect the results of EIA’s study and other work on this topic, including the characterization of existing crude oil export policies, the extent of continued opportunities to substitute domestically produced crude for imported crude used in U.S. refineries, the extent of the global production response, if any, to increased domestic production, and the possibilities for expanding U.S. processing capacity if domestic production turns out to be high and current crude export restrictions remain in place.

Additional analysis is provided in the full report, Effects of Removing Restrictions on U.S. Crude Oil Exports.

U.S. average gasoline and diesel fuel prices decrease

The U.S. average retail price of regular gasoline decreased 13 cents from last week to $2.51 per gallon on August 31, 2015, 95 cents per gallon less than at the same time last year. The Midwest price showed the largest decline, down 20 cents to $2.47 per gallon. The West Coast price decreased 12 cents per gallon to $3.16 per gallon. The Gulf Coast and East Coast prices were both down nine cents per gallon, to $2.20 per gallon and $2.34 per gallon, respectively. The Rocky Mountain price was down five cents to $2.77 per gallon.

The U.S. average diesel fuel price fell five cents from the previous week to $2.51 per gallon, down $1.30 per gallon from the same time last year. The East Coast price decreased six cents to $2.59 per gallon. The Midwest, Gulf Coast, and West Coast prices each were down four cents, to $2.44 per gallon, $2.38 per gallon, and $2.72 per gallon, respectively. The Rocky Mountain price declined three cents to $2.56 per gallon.

Propane inventories gain

U.S. propane stocks increased by 0.6 million barrels last week to 96.3 million barrels as of August 28, 2015, 20.2 million barrels (26.6%) higher than a year ago. Midwest inventories increased by 0.4 million barrels and East Coast inventories increased by 0.2 million barrels. Rocky Mountain/West Coast inventories and Gulf Coast inventories both remained unchanged. Propylene non-fuel-use inventories represented 4.8% of total propane inventories.

 

Retail prices (dollars per gallon)

Retail price graphs
Retail prices Change from last
08/31/15 Week Year
Gasoline 2.510 -0.127 -0.949
Diesel 2.514 -0.047 -1.300

Futures prices (dollars per gallon*)

Futures price graphs
Futures prices Change from last
08/28/15 Week Year
Crude oil 45.22 4.77 -50.74
Gasoline 1.522 -0.023 -1.261
Heating oil 1.576 0.114 -1.281
*Note: Crude oil price in dollars per barrel.

Stocks (million barrels)

Stock price graphs
Stocks Change from last
08/28/15 Week Year
Crude oil 455.4 4.7 95.9
Gasoline 214.2 -0.3 4.2
Distillate 150.0 0.1 26.6
Propane 96.344 0.620 20.220

For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.

 


This Week in Petroleum

Release date: January 7, 2015  |  Next release date: January 14, 2015

Regional refinery trends continue to evolve

Recent rapid growth in U.S. production of light tight oil has raised interest in understanding how U.S. refineries, many of which are configured to process heavier crude oil, might accommodate increased volumes of domestic light crude. The U.S. refinery fleet, which is distributed acrossPetroleum Administration for Defense Districts (PADDs) as shown in Figure 1, varies both within and across regions in capacity, quality of crude oil inputs, utilization rates, and sources of crude supply.

The East Coast (PADD 1), which has 10 operable refineries, 9 of which are currently operating, with 1.3 million barrels per stream day (bbl/sd) ofatmospheric crude distillation unit capacity (ACDU). Stream day capacity, the maximum number of barrels of input that a distillation facility can process within a 24-hour period when running at full capacity under optimal crude and product slate conditions with no allowance for downtime, is typically about 6% higher than calendar day capacity, which reflects usual operating conditions including both planned and unplanned maintenance.

PADD 1 gross inputs (which include crude oil, straight-run fuel oil, and topped crude) averaged 1.1 million bbl/d in 2014 (through October, the latest data available), which is consistent with recent years. More than 70% of the region’s capacity is at refineries that do not have coking units that can upgrade heavy crude oil into higher-valued lighter products, such as distillate and gasoline. As a result, PADD 1 refineries process mostly light crude oil, as reflected in an average API gravity of crude runs averaging 34.2, the highest in the country last year. (API gravity is an inverse measure of the density of a petroleum liquid relative to water. The higher the number, the lower the density of the petroleum liquid compared to water.)

Historically, most crude supply to PADD 1 has been imported light sweet crude. The region lacks crude oil pipeline connections from domestic production regions and has very limited in-region production. However, since 2010, rising light tight crude oil production in the Bakken formation in North Dakota, combined with the expansion of crude-by-rail infrastructure, has reduced the region’s import dependence. East Coast imports of crude oil averaged 98% of gross refinery inputs in 2010 but only 51% in 2014. While access to Bakken crude oil has provided PADD 1 refineries with crude selection flexibility, actual refinery crude slates will continue to be a function of relative crude prices.

The Midwest (PADD 2) is the second-largest refining region in the country, with 27 operable refineries. The 26 refineries currently operating have 4.1 million bbl/sd of ACDU capacity, 70% of which is at facilities with coking capacity. Since 2010, several Midwest refiners havereconfigured their facilities to process more heavy crude, adding a total of 157,000 bbl/sd of coking capacity. Over the same time, ACDU capacity has increased by 148,000 bbl/sd and gross inputs have risen by 205,000 bbl/d. With the increase in heavy crude oil capacity, the average API gravity of crude inputs in PADD 2 has decreased slightly from 33.3 in 2010 to 32.9 through October 2014. Unlike the rest of the country, imports of crude oil into the Midwest are increasing, as the region runs more Canadian crude. This trend, combined with increases in regional production, has reduced PADD 2’s reliance on both U.S. and imported crude moved by pipeline from the Gulf Coast.

More than 50% of the country’s refinery capacity and most of the country’s heavy crude processing capacity is located in the Gulf Coast (PADD 3). The region’s 51 operating refineries with ACDU units have capacity totaling 9.7 million bbl/sd, 81% of which is located at facilities with coking capacity. Recent expansions have increased ACDU and coking capacity by 625,000 bbl/sd and 160,000 bbl/sd, respectively, since 2010. Despite the expanded capacity, utilization has remained steady and the region has recently set records for high levels of gross inputs.

Changes to crude oil supply patterns are most pronounced in the Gulf Coast. Net imports into the region have fallen by 2.3 million bbl/d, and light sweet crude imports have been largely replaced by domestic production. In addition, from 2010 to 2014, the average API gravity of crude inputs rose by 1 degree, indicating that average crude slates are becoming lighter. Crude oil production in PADD 3 has increased by 1.9 million barrels since 2010 and receipts of crude oil from PADD 2, including both U.S. and Canadian production, have increased as well. With more Canadian and domestic barrels moving south from PADD 2 to PADD 3 and lower demand for crude shipments from PADD 3 to PADD 2, net receipts for PADD 3 were positive in October 2014 for the first time since December 1985. Instead of being a net source of crude supply for neighboring regions, PADD 3 shipments and receipts are now roughly at parity.

The Rocky Mountain region (PADD 4) has the least amount of refining capacity, 17 refineries with 0.7 million bbl/sd ACDU capacity. Just over half of the capacity (55%) is at refineries with coking capacity. Runs in the region have increased 6% since 2010 due to a combination of an increase in utilization and expansion of capacity. The API gravity of crude processed has not changed significantly since 2010, and in 2014 averaged 33.7 through October. PADD 4 crude oil production has increased 64% since 2010 and now exceeds regional crude runs, making the Rocky Mountains the only region that is a net supplier to other PADDs.

The West Coast (PADD 5) has 30 operating refineries with 3.1 million bbl/sd ACDU capacity, two-thirds of which is at facilities with coking capacity. Gross inputs in the region have been steady, averaging 2.6 million bbl/d since 2010. Due in large part to the quality of crude oil produced in California, PADD 5 runs have the lowest API gravity in the country, averaging 28.4 in 2014. Refineries in the region also run other domestic crudes; e.g., Alaska North Slope and Bakken. The region runs roughly equal amounts of domestic and imported crude oil, but declining Alaskan production has been offset by crude receipts by rail from PADD 2.

With U.S. crude production in 2015 expected to average 9.3 million bbl/d, 700,000 bbl/d above the 2014 level, domestic refiners will continue to face changing supply and demand conditions, even as continued production growth in the first months of the year transitions to a more static production outlook as the effects of the recent sharp decline in oil prices are reflected in drilling decisions. Changes to infrastructure, refinery capacity, crude oil price differentials based on quality, and policy decisions will also affect refinery operations in the coming year.

U.S. gasoline and diesel prices fall, Midwest and Gulf Coast gasoline prices below $2 per gallon for first time since 2009

The U.S. average price for regular gasoline on January 5, 2015 was $2.21 per gallon, down nine cents from the previous week and $1.12 per gallon less than the same time last year. For the first time since 2009, two regions have average prices below $2 per gallon: the Midwest (down 11 cents to $1.97 per gallon) and the Gulf Coast (down 8 cents to $1.99 per gallon). The Rocky Mountain price fell 11 cents to $2.11 per gallon. The East Coast price declined eight cents to $2.36 per gallon, while the West Coast was down four cents to $2.58 per gallon.

The U.S. average price for diesel fuel declined eight cents to $3.14 per gallon, down 77 cents from the same time last year. The Midwest and Rocky Mountain prices declined 10 cents, to $3.10 per gallon and $3.14 per gallon, respectively. The Gulf Coast was down eight cents to $3.05 per gallon. The East and West Coast prices both fell five cents, to $3.20 per gallon and $3.22 per gallon, respectively.

Propane inventories fall

U.S. propane stocks decreased by 1.6 million barrels last week to 75.7 million barrels as of January 2, 2015, 33.2 million barrels (78.3%) higher than a year ago. Gulf Coast inventories decreased by 1.1 million barrels and Midwest inventories decreased by 0.4 million barrels. Rocky Mountain/West Coast inventories decreased by 0.1 million barrels, while East Coast inventories increased by 0.1 million barrels. Propylene non-fuel-use inventories represented 4.8% of total propane inventories.

Residential fuel prices decrease

As of January 5, 2015, residential heating oil prices averaged less than $2.97 per gallon, nearly 8 cents per gallon lower than last week, and $1.05 per gallon less than last year’s price for the same week. Wholesale heating oil prices averaged $1.91 per gallon, 9 cents per gallon lower than last week and $1.16 per gallon lower when compared to the same time last year.

Residential propane prices averaged less than $2.36 per gallon, 1 cent per gallon lower than last week, and over 47 cents per gallon less than the price at the same time last year. The average wholesale propane price decreased by almost 4 cents per gallon this week to less than 59 cents per gallon, just under $1.10 per gallon lower than the January 6, 2014 price.

For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-0786.


Retail prices (dollars per gallon)

Conventional Regular Gasoline Prices Graph. Residential Heating Oil Prices Graph.On-Highway Diesel Fuel Prices Graph. Residential Propane Prices Graph.
Retail prices Change from last
01/05/15 Week Year
Gasoline 2.214 -0.085 -1.118
Diesel 3.137 -0.076 -0.773
Heating Oil 2.967 -0.076 -1.053
Propane 2.358 -0.010 -0.471

Futures prices (dollars per gallon*)

Crude Oil Futures Price Graph. RBOB Regular Gasoline Futures Price Graph.Heating Oil Futures Price Graph.
Futures prices Change from last
01/02/15 Week Year
Crude oil 52.69 -2.04 -41.27
Gasoline 1.433 -0.076 -1.216
Heating oil 1.796 -0.112 -1.143
*Note: Crude oil price in dollars per barrel.

Stocks (million barrels)

U.S. Crude Oil Stocks Graph. U.S. Distillate Stocks Graph.U.S. Gasoline Stocks Graph. U.S. Propane Stocks Graph.
Stocks Change from last
01/02/15 Week Year
Crude oil 382.4 -3.1 24.5
Gasoline 237.2 8.1 10.2
Distillate 136.9 11.2 12.0
Propane 75.650 -1.594 33.217


https://www.e-education.psu.edu/eme801/node/471

Regional analysis of petroleum product movements: Petroleum Administration for Defense Districts

Printer-friendly versionPrinter-friendly versionPlease read this short but informative background on the PADD system from the Energy Information Administration:

Originally created during World War II for the purposes of regional rationing of gasoline supplies, the Petroleum Administration for Defense Districts (PADDs) are still utilized today to track regional movements of crude oil and (particularly) petroleum products in the United States. While the PADD system might seem a bit archaic, studying the movements of petroleum products between the PADD regions is useful for understanding how these markets are segmented in the United States. Figure 2.5 shows a map of the PADDs with the locations of oil refineries.

 Map showing operable refinery locations and capacities

Figure 2.5: Petroleum Administration for Defense Districts and oil refineries in each.
Credit: Photo Source

 

 Map showing Petroleum Administration for Defense Districts

Figure 2.6: Inter-PADD shipments of petroleum products.
Credit: Photo Source

 

The description of the PADD system from the EIA includes some data on inter-PADD shipments of petroleum products (remember that most of these will be gasoline and the “distillates” – diesel fuel and heating oil). Figure 2.6 shows this data in visual form, again using the PADD designation map from the EIA. The figure indicates that there is substantial inter-PADD trade between the eastern states, the Gulf Coast and the Midwest. The Rocky Mountain states and the U.S. West Coast, on the other hand, are largely isolated from the rest of the United States and even from one another. Because of a lack of refinery capacity and pipeline capacity, the U.S. West Coast in particular has a gasoline and diesel market that is largely separate from the rest of the country. (This is also due in part to California’s gasoline standards, which are more stringent than in the rest of the U.S.)

Petroleum product pipeline maps are not available in the public domain, but you can view an image online at the following websites.


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