The EIA published its weekly oil report today, and the story remains headlined by lower demand restoring inventory levels. Gasoline consumption was 5.5% lower than last week, helping a recovered refinery system and high imports increase its inventory back toward normal levels. Distillates/diesel inventories fell another half a million barrels to the bottom of the average range for this time of year. But 12% lower demand than last year allowed the days of supply to remain at a sufficient level. And propane demand continued to be extremely low, at 34% below last year — allowing its inventory to approach the average range in terms of millions of barrels and remain very high when considering days of supply.
However, the US production picture remains gloomy. Rig recovery from Gustav and Ike has proved to be a slow process, leaving almost half of the Gulf of Mexico’s oil production offline still today. With crude production poised to remain below last year’s level for at least a couple more weeks, 2008 production could end up significantly more than 2% below last year (it now stands 1.8% below 2007). With US oil production now less than half of what it was at its peak 38 years ago (1970), it’s clear that “drill, baby, drill”-ing has little chance of remedying our lack of oil security. Efficiency and conservation to reduce demand has proved this year to be the best way to reduce oil prices (as oil has fallen 40% from its record high in July and gasoline may approach $3 per gallon within a few weeks). If we do even more to drive demand down while growing green jobs manufacturing efficient vehicles and appliances, then we can keep oil from crippling our economy further in the future.
Unless we take such aggressive measures, much of our economy will depend on the generosity of OPEC to keep supply high. But with oil prices approaching $80-$85, many OPEC members are getting anxious for another cut in production. Even producers outside of OPEC like Russia may cut their production as its more expensive fields may lose money at such prices.
Natural gas producers in the US face a similar dilemma as their costs of production get undercut by the price in the market currently below $7 per MMBtu. The good news is this will leave more production for future generations. But we must make sure we don’t get complacent about our addiction to oil and gas just because current recession-induced prices remind us of the care-free 90s when SUVs replaced cars as the most favored means for the daily commute…
Onwards to the sustainable energy transition-