U.S. fuel prices stable as price of global oil spikes

U.S. fuel prices stable as price of global oil spikes

Diesel and gasoline prices stayed flat and declined, respectively, this week in the U.S. but that could change as global oil prices continue to shoot up due to what the Energy Information Administration (EIA0 called “unexpected” production outages worldwide, some caused by growing unrest in African and Middle Eastern oil producing nations.

The EIA said the average retail pump price for diesel in the U.S. stayed flat this week at $3.981 per gallon, which is 15.1 cents per gallon cheaper compared to the same week in 2012. The agency added that diesel prices increased in five regions of the country: California (up 1.5 cents to $4.225 per gallon), the West Coast (up 1.4 cents to $4.142), New England (up 4/10ths of a penny to $4.091) and the Central Atlantic region (up 1/10thof a penny to $4.056).

EIA’s numbers also indicated that the Gulf Coast is once again home to the cheapest diesel in the U.S. and $3.898 per gallon; an increase of just 1/10thof a penny from last week.

Meanwhile, average retail pump prices in the U.S. for gasoline fell 2.1 cents to $3.587 per gallon, which is 26 cents per gallon cheaper than during the same week in 2012, according to EIA.

Gasoline prices dropped in all regions of the U.S., with the West Coast home to the highest price ($3.797 per gallon) and biggest one-week jump (a 4.7 cent per gallon increase). The cheapest gasoline in the nation is again the Gulf Coast, which witnessed a 2.9 cent decline this week to $3.377 per gallon.

Yet U.S. fuel prices may begin to shift upward as a variety of factors are pushing up global oil prices.

EIA noted that while Brent crude oil spot prices have increased as much as $7 per barrel (6%) since the alleged use of chemical weapons by Syria back on August 21, market fundamentals had already been pushing Brent prices well before.

Indeed, the agency noted that from mid-April to August 20, Brent crude oil spot prices increased almost $15 per barrel (15%) because of increasing global refinery demand coupled with record levels of unexpected crude oil production outages, notably in Iraq and Libya.

Global unplanned crude oil and liquid fuels disruptions averaged 2.7 million barrels per day (bbl/d) in August, the highest level recorded between January 2011 through August 2013, EIA noted.

The agency added that oil supply disruptions in key producing countries are also up sharply:

  • Libya. Protests at many seaport facilities have blocked exports, and, as a result, crude oil supply disruptions averaged close to 1 million bbl/d in August, up from 130,000 bbl/d in April. Pipeline closures by militia groups at the end of August have worsened the situation, with disruptions rising to between 1.35 and 1.4 million bbl/d by the end of August.
  • Nigeria. Disruptions in June on key pipelines helped curtail almost 450,000 bbl/d of production, up 100,000 bbl/d compared to May. Production recovered somewhat by August when 290,000 bbl/d were off-line.
  • Iraq. Persistent attacks on the pipeline from Kirkuk to Ceyhan in Turkey helped push disruptions of Iraqi crude oil production to 250,000 bbl/d in August, up 100,000 bbl/d from April. In addition, September maintenance at the Iraqi port of Basra could further reduce exports by several hundred thousand barrels per day through September.

While the EIA noted that Syria is not a major crude oil producer with no significant volumes of crude oil moving through the country to reach global markets – prior to its civil war, Syria produced only some 400,000 bbl/d of crude oil and exported about 150,000 bbl/d, mostly to Europe – the agency said ongoing hostilities combined with stringent international sanctions on petroleum exports are helping push Brent prices higher on concerns about wider geopolitical unrest in the Middle East, though EIA stressed that so far there's not been a reduced physical flow of crude oil into the global market.

Still, while concerns about geopolitical unrest will likely continue to affect crude oil prices, the agency also noted that several other factors that could eventually reverse course and decline:

  • Seasonal demand patterns. Seasonally, global crude oil demand declines in September, with the International Energy Agency (IEA) expecting global crude runs to fall 2.1 million bbl/d in September from their July peak to 76.2 million bbl/d, and to fall an additional 300,000 bbl/d in October.
  • Rising non-OPEC production. EIA projects non-OPEC liquid fuels production to increase almost 2 million bbl/d in 2013, with fourth-quarter 2013 production 700,000 bbl/d above the third-quarter level, helping to offset production disruptions elsewhere. Crude oil production in the U.S. is forecast to account for about 40% of this growth.
  • Sustained Saudi Arabian output. EIA expects Saudi Arabia to maintain elevated crude oil production of almost 10 million bbl/d into the autumn if high volumes of global production remain disrupted. Seasonally, Saudi Arabian production typically declines at the end of summer, falling in line with its declining domestic consumption, which peaks in the summer. Sustained production provides greater volumes for export, partially offsetting disruptions elsewhere. 
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