Just when I thought there were no more people willing to say something silly like "$20 oil."
It seems that, because not many people are paying enough attention to the oil market these days, someone has to kick the hornet’s nest. Yes my teeming millions, someone just tried to tell the world that gasoline prices have peaked. This is the top. God, I love when someone just asks for ridicule. This is not a Caitlyn Jenner moment. I mean that’s turning out to be a put up and shut up moment. This is another one of those “Marcia, Marcia, Marcia” moments. Sometimes people just have to say the ridiculous to get some attention. I try to pay as much attention to such things as much as I care about who wins Dancing with the Stars. Still, I can’t help but notice all the muss and fuss that we all give to those that say the ridiculous.
Now I will give them some credit for doing their due diligence. The last time that gasoline demand was running this hot and prices did peak in May was back in 2007. We hit a high on the RB Futures at $2.43 and never saw that again as refiners ran high and hard into summer. Alas, we can’t continue to compare every fledgling female pop starlet to Madonna. The way life works is that some things happen once in a lifetime and never again. See back in 2007 we ran refineries during May at a solid 15.5MM b/d of which we had a gasoline yield of 9.1MM b/d.
Once we saw the trouble at the pump we adjusted and we overcame. We picked up refinery runs to 15.7MM b/d and gasoline yield struck up the band to 9.3MM b/d. These may seem slight, but that added over 1MM of gasoline supply each week after May. Not too shabby.
Let’s check out what we're doing here in "the Caitlyn era." Right now we ran 16.2MM b/d of crude in May and are producing about 9.7MM b/d of gasoline from that. First off I’d like to wave goodbye to all of those that spent the past five years talking about how fuel efficient cars are on the road today helping ease demand. For once I’d like someone to tell me that I was right that when you double the U.S. unemployment number from 5% to 10% you’re going to lose demand. Or how when you are heading into a recession and GDP goes from 3% to negative and is only barely staying above 1% today that demand is going to have a tough time.
Now let’s get back to all those production numbers. Here is where we’re stuck. Capacity, not to mention record rates, is already at 92.5%. Back in 2007 we we’re at a lonely 91.1%. If one actually thinks that we can rely on imports to make up the difference, just to note that Brent is still trading a good +$4.65 to the imported crude. Kinda remember back in 2007 how we were still running WTI at a nice premium over Brent ($2.90) and importing gasoline at a 1MM b/d clip was a good thing.
Today we’re going to have to pay more to bring gasoline over from somewhere else. Oh no, that would mean that the silly gasoline prices would go up. Sorry kids, Dancing Elmo has to sell for 100% over face value when we can’t make enough to meet demand.