Oil prices continue to feel the heat from a rise in US rig counts and seasonal weakness but is finding some support near the yearly lows. Oil sank after Baker Hughes (NYSE:BHI) said the US oil rig increased by 6 to 670. Of course when those rigs probably started up oil was in a different world as hopes that the worst was over brought out that entrepreneurial spirit. Yet the recent plunge in price should lead to a future drop in oil rigs and U.S. oil production will start to slide.
Oil prices are also worried about China and while the Shanghai Composite started strong by closing higher, Chinese exports fell 8.3% from a year earlier and imports were also down by 8.1%.
Reuters News reports that the Lundberg survey reports that the average price of a gallon of gasoline in the United States fell 11 cents in the past two weeks. Regular grade gasoline fell to an average price of $2.71 per gallon, according to the biweekly survey dated Aug. 7, down 11 cents from the previous survey on July 24. Gasoline is down 81 cents a gallon from the same year-ago period, according to the survey. This comes after the Energy Information Administration report that U.S. refineries are running at a record high. The EIA says that gross inputs to US refineries exceeded 17 million barrels per day (b/d) in each of the past four weeks, a level not previously reached since EIA began publishing weekly data in 1990. The rolling four-week average of US gross refinery inputs has been above the previous five-year range (2010-14) every week so far this year. The record high gross inputs reflect both higher refinery capacity and higher utilization rates.
Lower crude oil prices and strong demand for petroleum products, primarily gasoline, both in the United States and globally, have led to favorable margins that encourage refinery investment and high refinery runs. Refinery margins are currently supported by high gasoline crack spreads that reached a peak of 66 cents per gallon (gal) on July 8, a level not reached since September 2008.
The EIA say that for the past several years, distillate crack spreads have consistently exceeded those for gasoline, but since May, this trend has reversed. From 2011 to 2014, distillate crack spreads (calculated using Gulf Coast spot prices for Light Louisiana Sweet crude oil, conventional gasoline, and ultra-low sulfur distillate) averaged a 24 cents/gal premium over gasoline crack spreads. Since May 20, Gulf Coast gasoline crack spreads have averaged 17 cents/gal higher than for distillate crack spreads.
Higher demand for gasoline is supporting these margins. Total US motor gasoline product supplied is up 2.9% through the first five months of 2015, and trade press reports indicate that demand is also higher in major world markets such as Europe and India so far this year compared with 2014. Total U.S. petroleum product supplied (a proxy for demand) is up 2.5% through the first five months of the year compared with 2014. Much of the refinery output is reaching global markets, as net exports are 19% higher this year through May.
Support is building in congress for a lifting of the US oil export ban. The Wall Street Journal reports that "Big voices in the oil industry and Congress now support a move that would have been unthinkable not long ago: opening the U.S. oil industry to exports." Bloomberg Reports that House legislation that would end the 40-year ban on the export of domestic crude oil will receive a floor vote this fall, Rep. Joe Barton (R-Texas), the bill's sponsor, told Bloomberg.
The legislation (H.R. 702), which has 113 co-sponsors, including 13 Democrats, has been gaining momentum as booming domestic oil production and low gas prices have led lawmakers to question the need for the policy enacted in the wake of the Arab oil embargo. "We've got green lights in the House all the way," Barton said in a phone interview. "The whip, the majority leader, the speaker are all on board to move the bill." While House leadership has committed to bring the bill to a vote, Barton said it remains unclear if the bill will move as stand-alone legislation, which he prefers, or as an amendment to broader energy legislation expected to be marked up by the House Energy and Commerce Committee and brought to the floor in September.
"They have committed to support the bill and bring it to a vote," Barton said of House leadership. "I have every expectation President Obama will sign it."
The trade prohibition, which applies to most U.S. oil exports but not refined products like gasoline and jet fuel, is opposed by oil producers such as ConocoPhillips (NYSE:COP) and Marathon Oil Corp (NYSE:MRO). House Speaker John Boehner (R-Ohio) joined a growing chorus of lawmakers calling for it to end, telling reporters in July doing so would be "a big boost to the economy". "America is experiencing an energy boom, and our policy needs to follow suit," he said.
Opponents of changing the law include Consumers and Refiners United for Domestic Energy (CRUDE), a coalition of independent refiners comprising Alon USA Energy Inc (NYSE:ALJ), PBF Energy Inc (NYSE:PBF), Philadelphia Energy Solutions and Delta Air Lines Inc's (NYSE:DAL) Monroe Energy LLC, who argue lifting the ban will increase domestic oil prices.