Will the Shutdown’s End Bring Lower Oil Prices?

Oil

The Energy Information Administration on Tuesday released its weekly reports on the status of various liquid fuels in the United States, covering the week that ended October 11. The reports look at 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’s release was highlighted by tension over the partial U.S. government shutdown, which delayed the publication date of the reports, as well.

Working natural gas in storage — the volume readily available to the market — increased by 77 billion cubic feet in the week ended October 11 to 3,654 Bcf, according to EIA estimates. This is down by 115 Bcf from the same period last year but still above the five-year historical range.

Futures traded at $3.668 per mmBTU, below the $4 to $6 range within which producers can both earn a profit and compete with alternative fuels such as coal.

The data show a trend that 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 United States 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 14.9 million barrels per day during the week ended October 11, with refineries operating at 86.2 percent capacity. U.S. commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, increased by 4 million barrels from the previous week. At 374.5 million barrels, U.S. crude oil inventories are above the upper range for this time of year.

WTI, a grade of crude oil used as a benchmark in oil pricing, was $103.83 per barrel, 97 cents more than last week’s price and $13.96 more than a year ago. The price of oil may drop throughout the rest of 2013 as production is ramped up in the U.S. and tension in the Middle East is resolved. The resolution of the government shutdown may serve to boost demand in the coming weeks, however.

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

On October 14, the average retail price of a gallon of gasoline in the U.S. was $3.354. This is down more than 46 cents from the year-ago period and down 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 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 the world resets after the U.S. government shutdown.

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