The EIA released its weekly inventory reports for oil and natural gas these past two days, and even the cold weather hasn’t been able to bring supplies down to the historical average. Industrial demand has fallen so significantly that our inventory numbers leave little cause for worry in the weeks ahead. For instance, crude supplies are 15% higher than last year while demand is down. Refined products such as gasoline, distillates, and propane are all above the historical average on demand that is 3.6%, 6.1%, and 4.4% lower than last year, respectively. The fact that last week’s serious cold snap (believe me, I was pedicabbing in it didn’t increase distillates and propane demand is amazing. The relatively strong compliance by OPEC members to cut their production has allowed oil prices to climb back up toward $50 per barrel, but further cuts must continue to materialize or inventory numbers and recessionary demand will pull prices back into the $30s.
For natural gas inventories, the cold snap had an effect. Natural gas in storage fell more than 6% last week to a level below last year. But supplies remain healthy at 1.2% above the historical average. The cool weather of the next two weeks could bring supplies slightly below average levels, but low industrial demand keeps prices very low below $5 (which I thought was more of a floor than it has been the past several days).
The question is whether the falling oil and natural gas rig count will translate into significantly lower US production that brings the market back into balance at a price level higher than today. I’ll be reporting on that story as it unfolds in the weeks ahead. But for now, renewable energy companies will need to focus on lowering costs to stay competitive with the less expensive fossil energy reality of 2009.
Onwards in the Sustainable Energy Transition-