Oil Prices Continue to Drop as Winter Approaches

Oil refineries

The Energy Information Administration recently released its latest weekly reports on the status of various liquid fuels in the United States, covering the week that ended November 8. 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 reports have been highlighted by increased stockpiles of fuels, driving prices to five-month lows.

Working natural gas in storage — the volume readily available to the market — increased by 20 billion cubic feet in the week ended November 8 to 3,834 Bcf, according to EIA estimates. This is down by 80 Bcf from the same period last year but still slightly above the five-year historical average.

As of Thursday, futures traded at $3.566/mmBTU, up nearly 12 cents on the week but still below the $4-$6 range within which producers can both earn a profit remain and compete with alternative fuels such as coal.

The data show 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.

chart-16

U.S. crude oil refinery inputs averaged about 15.4 million barrels per day during the week ended November 8, with refineries operating at 88.7 percent capacity. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.6 million barrels from the previous week. At 388.1 million barrels, U.S. crude oil inventories are above the average range for this time of year. Oil reserves have been growing steadily over the past months as winter approaches.

WTI, a grade of crude oil used as a benchmark in oil pricing, was $94.56 per barrel, the same as last week’s price but $8.48 more than a year ago. The price of oil has been falling as winter draws near, a seasonal trend typical of this time of year. Usually, decreased demand for oil-based products during the winter offsets increased demand drivers such as the need for heating oil.

chart-17

As the EIA put it, “All else equal, changes in gasoline prices follow changes in crude prices.”

For the week ended November 11, the average retail price of a gallon of gasoline in the U.S. was $3.194. This is down 25 cents from the year-ago period and down 7 cents from just a week ago. It is also down substantially 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 per gallon by the end of the year. Thanks to increased production in the U.S. and other non-OPEC countries, prices have been steadily dropping, with no end to the decreases in sight.

Don’t Miss: New EPA Standards Provide Opportunity for Midwest Energy Emissions Corp.