Rising gasoline prices have been a big news story this past week increasing to a nationwide average of $2.87 per gallon. The U.S. average diesel fuel price increased to $3.24 per gallon.
West Coast tops the nation at $3.73, and Gulf Coast has the lowest at $2.61, according to the Energy Information Administration (EIA).
Gasoline, diesel and other distillate fuels are made from crude oil, and crude oil prices topped $70 per barrel on the NYMEX recently for the first time since 2014.
The rise in consumption and decline in oil production worldwide has resulted in the decline of crude oil, gasoline and distillate inventories, which have been a major reason for the increase in price, EIA stated.
“Since January 2017, one of the primary indicators of a tightening world oil market has been a decline in crude oil and other liquids inventories,” according to EIA. “After sustained increases in quarterly global liquid inventories from mid-2014 through most of 2016, inventories declined throughout 2017 and into the first quarter of 2018.
“From January 2017 to April 2018, U.S. crude oil and other liquids inventories decreased by 162 million barrels while Organizaton for Economic Cooperation and Development (OECD) inventories decreased by 234 million barrels,” EIA stated. “Over this same period, U.S. and OECD crude oil and other liquids inventories moved from 229 million barrels and 334 million barrels, respectively, higher than their five-year averages to 16 million barrels and 2 million barrels lower.”
The Organization of the Petroleum Exporting Countries (OPEC) agreed in November 2016 to implement a reduction in crude oil production by 1.2 million barrels per day (b/d), and to limit total OPEC production to 32.5 million b/d. In addition, Russia agreed to reduce its crude oil production. OPEC extended the agreement in November 2017, with the production cuts remaining in place until the end of 2018.
“As OPEC plans to reconvene on June 22, markets now appear more in balance, but uncertainty remains going forward,” according to EIA.
Between the first quarter of 2017 and the first quarter of 2018, estimated total world petroleum and other liquids production rose 1.6 million b/d. OECD petroleum and other liquids production rose 1.3 million b/d, and most of this growth came from increased crude oil production in U.S, which increased by 1.2 million b/d, from 9.0 million b/d to 10.2 million b/d. Total OPEC petroleum (crude and other liquids) production increased by 0.4 million b/d over this period. Total OPEC crude oil production remained at 32.4 million b/d, which was just below its agreement level of 32.5 million b/d.
Total world petroleum and other liquids consumption increased by an estimated 1.9 million b/d between the first quarters of 2017 and 2018, exceeding the growth in production and resulting in inventory declines. This consumption growth occurred primarily in the United States (0.6 million b/d), China (0.5 million b/d), and other Non-OECD Asia (0.6 million b/d).
Alex Mills is the former President of the Texas Alliance of Energy Producers. The opinions expressed are solely of the author.