Oil Prices Sink as Government Shuts Down

Source: http://www.flickr.com/photos/ollesvensson/

Yesterday, the Energy Information Administration released its weekly reports on the status of various liquid fuels in the United States, covering the week that ended September 27. 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. This week was highlighted by fears over a potential shutdown of the U.S. government, which it turns out were well grounded.

Working natural gas in storage — the volume readily available to the market — increased by 101 billion cubic feet in the week ended September 27 to 3,438 Bcf, according to EIA estimates. This is down by 155 Bcf from the same period last year, but within the five-year historical range. Natural gas futures are trading at just below $3.50 /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 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, and a recent report by the agency claims that the U.S. could be the world’s leading producer of petroleum and natural gas hydrocarbons by the end of this year.

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U.S. crude oil refinery inputs averaged about 15.4 million barrels per day during the week ending September 27 with refineries operating at 89 percent capacity.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 5.5 million barrels from the previous week. At 363.7 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year.

WTI, a grade of crude oil used as a benchmark in oil pricing, was $108.26 per barrel, $1.84 less than last week’s price but $10.68 more than a year ago. Many are concerned that the price of oil will continue to fall as the government shutdown continues, with lagging demand being the primary driver behind the price drop.

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As the EIA put it, “All else equal, changes in gasoline prices follow changes in crude prices.” On September 30, the average retail price of a gallon of gasoline in the U.S. was $3.425. This is down 38 cents from the year-ago period, and down 7 cents from the previous week as well. 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, as well as the government shutdown, prices may continue to decline moving toward the year’s end.

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