The front-month NYMEX West Texas Intermediate futures contract on Thursday rose above $90/bbl for the first time since November in a petroleum market that is quite different from that seen in late October 2007, when oil first broke above the $90 mark on its way to a 2008 peak of $145/bbl.
The move above $90/bbl was a big deal in 2007 and is still noteworthy. But a look at the numbers then and now shows the downstream fuel market changed dramatically over the last 16 years.
The U.S. population in the fall of 2007 was about 303 million, compared with just over 340 million people in 2023. But U.S. gasoline demand now is not too far off from what it was in 2007. The Energy Information Administration’s four-week average of implied demand in 2007 was 9.295 million b/d, compared with about 8.9 million b/d now.
But the average retail price for gasoline on Oct. 25, 2007, was just $2.819/gal, compared with an average of $3.581/gal now. Retail diesel prices show a similar pattern, with the 2007 average at $3.16/gal compared with a current quote of $4.53/gal.
Put simply, U.S. pump prices for transportation fuels are now more than $1/gal higher than they were when the domestic crude oil benchmark first surpassed $90/bbl.
Those gains are largely due to dramatically higher refinery margins as well as more profit for gasoline distributors and retailers.
There is also the issue of compliance with the Renewable Fuel Standard program, which refiners didn’t have to contend with earlier this century. Merchant refiners currently face RFS costs that can sap about $7/bbl from gasoline and distillate cracks.
Still, current retail prices point out the sharp improvement in profit margins for refiners in every region of the country. The sharpest g gains have come in the middle of the barrel, with refiners seeing particularly high profits on jet fuel and diesel.
The improved profit markets are particularly apparent in Southern California. The region tends to use heavy California crude that sells at a discount to NYMEX WTI, but spot jet fuel in Los Angeles fetches a value of $4.21/gal, or about $177/bbl. It’s possible that some of the more efficient operators are selling jet fuel for twice what they pay for crude.
Returns on diesel aren’t far behind, with CARB diesel pegged Thursday morning at $3.966/gal or about $166.60/bbl. That compares with a much more moderate CARB diesel price of $2.617/gal in October 2007.
Then and Now -- Petroleum Measurements Against the Backdrop of $90/bbl WTI Then Current US Crude Oil Production 5.1 million b/d 12.9 million b/d US Refining Capacity 17.45 million b/d 18.27 million b/d Crude Oil Exports 24,000 b/d 3.09 million b/d Total Products Exports 1.2 million b/d 5.96 million b/d Total Crude Imports 9.38 million b/d 7.58 million b/d US Gas Demand (4-wk) 9.29 million b/d 8.90 million b/d Total Product Demand 20.722 million b/d 20.95 million b/d Commercial Crude Stocks 694 million bbl 350.6 million bbl
Total product demand now is surprisingly close to what it was in 2007, but refined product prices are higher thanks mostly to the sharp rise in exports.
The only crude oil exports that were possible in 2007 involved Alaskan oil swaps with Asia. EIA this week said the U.S. exported 3.09 million b/d of crude last week. While that was below some other weeks, it represents a 128-fold increase from the fall 2007 level.
Another dramatic difference between then and now comes in Strategic Petroleum Reserve holdings. In late 2007, SPR stocks were at nearly 694 million bbl and the George W. The Bush administration continued to add to the stocks despite high costs, with more than 701 million bbl accrued by the time the president left office.
Part of the SPR build then was due to the fact that the U.S. was much more dependent on crude oil from locations outside of North America.
Refinery consultants also point out that Latin America in 2023 is much more dependent on gasoline and diesel produced in the U.S., most of it supplied by refineries in Texas and Louisiana. Sixteen years ago, Latin American refining capacity was significantly higher than it is today. The failure of Venezuela’s PDVSA operations across a number of countries accounts for substantial refining losses in the hemisphere.
Then and Now -- Petroleum Price Points Against the Backdrop of $90/bbl WTI Then Current WTI Futures $90.46/bbl $90.03/bbl ULSD Futures $2.4084/gal $3.458/gal RBOB Futures $2.2358/gal $2.754/gal NY Harbor Gasoline $2.2435/gal $2.961/gal Gulf Coast Gas $2.2180/gal $2.700/gal Group 3 Gas $2.2740/gal $2.956/gal Chicago Gas $2.275/gal $2.663/gal Los Angeles CARBOB $2.500/gal $3.639/gal NY Harbor Diesel $2.528/gal $3.463/gal Gulf Coast Diesel $2.462/gal $3.393/gal Group 3 Diesel $2.486/gal $3.433/gal Chicago Diesel $2.509/gal $3.025/gal Los Angeles Diesel $2.617/gal $3.966/gal NY Harbor Jet Fuel $2.528/gal $3.386/gal Gulf Coast Jet Fuel $2.489/gal $3.255/gal Chicago Jet Fuel $2.526/gal $3.080/gal Los Angeles Jet Fuel $2.560/gal $4.210/gal Chicago Ethanol $1.785/gal $2.430/gal
The numbers speak to the difficulty that energy equity analysts have in predicting future refinery performance. Until recent years, a $20/bbl return would have been considered a superlative margin for gasoline or distillate.
More recently, however, processors are seeing margins that are several times higher than what is regarded as “midcycle.”
Another issue worth considering as WTI trades around the $90/bbl mark is that the comparison with October 2007 gasoline needs to be viewed in the context of autumn specifications that often lower gasoline production.
Starting on Friday, most U.S. states will move to higher RVP gasoline. Those autumn and winter specifications for gasoline that allow blenders to load up finished motor fuel with cheap butane, naphtha and natural gasoline.
This week has seen little selling tied to the imminent RVP change. At the very least, some of the huge premiums for reformulated gasoline should disappear in most markets, putting some downward pressure on gasoline prices.
It’s not just refiners who have seen expanded profits in recent years. Gasoline retailers have also seen their fortunes improve.
In October 2007, the typical rack-to-retail gross margin was 13.4cts/gal, with diesel margins a few cents above that. The average margin Thursday based on real-time data in OPIS MarginPro was 34cts/gal for regular gasoline and 35cts/gal for diesel.
This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.
–Reporting by Tom Kloza, [email protected]; Editing by Jeff Barber, [email protected]
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