Oil Prices Continue to Drop as Winter Approaches

Recently, the Energy Information Administration released its weekly reports on the status of various liquid fuels in the United States, covering the week that ended November 15. The reports cover natural gas and petroleum, presenting data about the production, storage, and prices of the fuels. Changes in the data can reflect natural variations, seasonal trends, long-term market effects, and current events in regions of the globe where liquid fuels are produced, processed, and sold.

The seasonal drop in gas prices during wintertime, international talks with Iran, and the upswing of fuel production in the United States have been the major drivers behind prices. Working natural gas in storage — the volume readily available to the market — declined by 45 billion cubic feet in the week ended November 15 to 3,789 Bcf, according to EIA estimates. This is down by 89 Bcf from the same period last year, but still slightly above the five-year historical average.

As of Thursday, futures traded at $3.674/mmBTU, below the $4 to $6 range within which producers can both earn a profit remain and compete with alternative fuels such as coal. The data shows a trend has developed over the past few years. Inventories have been on the rise as domestic production increases, largely thanks to advances in horizontal drilling and hydraulic fracturing technology. These advances have contributed to a revolution in energy production in the U.S. and producers are rapidly helping make the dream of energy independence come true. Domestic production supplied the U.S. with 84 percent of its total energy needs in 2012, the highest level since 1991. The EIA estimates that the U.S. could become a net exporter of natural gas as early as 2020, assuming regulatory hurdles can be overcome.

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U.S. crude oil refinery inputs averaged about 15.4 million barrels per day during the week ending November 15, 2013, with refineries operating at 88.6 percent capacity. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.4 million barrels from the previous week. At 388.5 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year.

This did come as a surprise to many experts, who believed that the reserves would only shrink by 200,000 barrels or less. The news sent the price of crude oil futures sharply upwards.

WTI, a grade of crude oil used as a benchmark in oil pricing, was $93.80 per barrel, $0.76 less than last week’s price but $7.18 more than a year ago. Some believe that the price will continue to drop if talks with Iran come across as positive over the coming days, meaning that WTI could easily be under $90 a barrel in the near future.

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As the EIA put it, “All else equal, changes in gasoline prices follow changes in crude prices.” For the week ended November 18, the average retail price of a gallon of gasoline in the U.S. was $3.219. This is down 21 cents from the year-ago period, though up a fraction from the previous week. It is also down from the summer-to-date peak of $3.68, which was hit on July 22.

Earlier in August, the EIA projected that oil and gas prices would decline throughout 2014 — with regular gasoline approaching $3.00 per gallon by the end of the year. Thanks to increased production in the U.S. and other non-OPEC countries, prices could very well still continue to decline as winter sets in.

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