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Oil Industry Survey Reveals Fuel Price Spikes Ahead
US Energy 2000 |
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| "We're not adequately prepared for this winter, more price spikes are ahead, & an Al Gore presidency could negatively impact the oil industry."
LAKEWOOD, NJ -- The worst may still be ahead as spot prices for key refined products in the next year will most likely surpass record numbers seen in the last eight months. That's the conclusion of a large sampling of supply executives contacted by OPIS Energy Group, the leader in tracking and analyzing U.S. petroleum prices and trends, in a mid-September survey. OPIS surveyed independent refiners, traders, schedulers and buyers two weeks ago just before the Strategic Petroleum Reserve crude sale was announced. We found plenty of variance in where they see prices this Winter, and into 2001, with a clear sense that extreme volatility will be a fixture for many months.
Most disturbing perhaps is an assessment by oil executives about the preparedness for the upcoming Winter. More than 70% of the supply survey respondents say that the oil industry is "not adequately prepared" for the 2000-2001 Winter.
Few executives see an easy solution to the perceived problem. One supplier attests that "allocation right down to the consumer level is almost a certainty" and a trader suggested that the government act to "stop October exports of distillate!" Many of those questioning the readiness of the industry call for much more aggressive stockpiling, and postponements of Fall refinery turnarounds. Others suggest that the "high prices will cut into demand" and let the free market go to work. Still others opine that it is already "too late" to address problems brought on by months of inadequate stock builds.
The lack of clear remedies for a Winter supply squeeze is seen in traders' assessments of where prices for N.Y. Harbor heating oil may crest. Executives were asked to pick the likely wholesale price peak for the next year, and the average assessment was $1.77 gal--about 85cts gal above where N.Y. prices stood on October 1, 2000. Trade people are in essence predicting a heating oil price rally that will exceed the incredible spike seen last February.
Ultimately, more than 40% of those surveyed believe that wholesale heating oil prices will eventually spike above $2.00 gal in the upcoming Winter. A small dissenting group holds the opposite view, which is that $1.00 gal numbers seen in mid-September may be higher than any of the numbers likely in the next twelve months.
Crude may calm, but gasoline price spikes will return
Nothing remotely resembling a consensus on the future of West Texas Intermediate crude futures exists among those polled. Suppliers were asked to predict the settlement price for WTI futures on the first business day of 2001 (January 2) and our survey yielded an average quote of $33.89 bbl.
But responses were diverse, ranging from a low of $26 bbl to a high of $51 bbl. About one out of six respondents believe that the new year will begin with crude futures above $40 bbl, while one in four predict that 2001 will debut with prices of less than $30 bbl.
Meanwhile, there is a clear sense brewing that the wild ride for gasoline is far from over, as revealed by oil executives' predictions on the likely spot high for Gulf Coast gasoline and Los Angeles CARB gasoline in the next twelve months.
Respondents collectively predict that Gulf Coast gasoline will top out at $1.14 gal in the next year. That's about 9cts gal above the June 22 intraday high, and more than 33cts gal higher than where Gulf Coast unleaded prices stood on October 2.
About one third of the supply community predicts that Gulf gasoline will top $1.25 gal, with the apex most likely to be hit during next year's driving season. Only a handful of supply executives believe that prices won't revisit $1.00 gal-plus levels within the next year.
An even steeper ascent is forecast for California, where prices topped out at $1.65 gal in late Summer. Nearly half of the surveyed group believe that California gasoline will top $1.75 gal in the next twelve months, and about one fourth of the group believes $2.00 gal-plus wholesale prices will be witnessed in that state. The average expectation of a twelve-month peak of
$1.98 gal reflects the sentiment that California supply problems will be recurring events.Virtually no one in the supply community predicts that California gasoline numbers won't trade considerably above the $1.15-$1.20 gal level witnessed at presstime.
Supply folks assess their peers
Bigger is almost always better when it comes to refining, marketing, and trading. Respondents were asked to identify peer companies that were "particularly well managed" and there were three clear favorites: Tosco, ExxonMobil, and BPAmoco.
Those three companies were the most active consolidators in the industry over the last eighteen months, and they received high marks for integrating assets quickly and with clear goals in mind.
The companies which scored highest on this question a year ago--Koch and Morgan Stanley--didn't get much attention this time. In Koch's case, the company got an equal number of positive and negative comments, and Morgan Stanley was barely mentioned.
Respondents were also asked to cite any firms that they thought were "poorly managed", and there was a clear choice in this area. Supply personnel frequently cited the Shell/Texaco alliance companies of Motiva, Equiva and Equilon, with those firms getting more than twice the negative votes of any other entities. Many of those polled actually referred to the questionable business plans of these companies, with no clear sense of where the alliance firms are heading.
Meanwhile, Crown, Citgo, Coastal and Sun also garnered multiple votes as "poorly managed" firms in this most undesirable of categories.
Surprisingly, the year saw a slight strengthening in respect for industry statistical gathering. On a scale of 1-10, with 10 representing high confidence, respondents rated API data at 6.32, with DOE data just under that mark at 6.21.
Respect for publication benchmarking was similarly measured, with OPIS, Platts, and Petroleum Argus all garnering reasonably high reliability ratings.
Strong opinions on the political front
No surprises on the personal preferences in the oil patch. George W. Bush remains the favorite of an overwhelming 89% of respondents, and that's a number consistent with his popularity in a our OPIS Focus survey last year.
But suppliers don't necessarily believe that Governor Bush will make it to the White House. A slight majority (52%) see Vice President Al Gore winning the presidential race in November.
Oil supply people clearly don't get a warm and fuzzy feeling about the ramifications of a Gore administration. More than three quarters of survey respondents believe that a Gore presidency might have a negative impact on the oil industry. Less than 10% believe that the Democrat may have a positive impact on the oil business, and the rest see no impact from such an election.
The current Clinton Administration's intent to sell crude oil out of the Strategic Petroleum Reserve received a mixed reception. Most supply executives (just above 70%) believe that the SPR should be tapped only in times of war, embargoes, and severe supply disruptions. Meanwhile, just under 30% of those polled thought that SPR sales should be used as leverage to alleviate stateside price spikes.
OPEC, the web, and the future
Odds and ends: - - OPEC has had a stellar year, and the cartel no longer evokes sneers and jeers when it comes to delivering on promises. About three quarters of executives expect that a year from now, the cartel will wield as much or more power than it currently has in world markets.
- Most respondents believe that they will be buying, selling, or trading oil on an electronic network within the next year.
- Those surveyed don't necessarily embrace the online trading platforms, however. Only about one third believe the networks will succeed, with one third predicting failure, and the remainder uncertain about the online trading future.
- A sense of optimism prevails for the refinery industry. Those polled were asked whether they thought the next twelve months would be more similar to 1999 (a tough year with narrow margins) or 2000 (a generally prosperous year for refiners). More than 75% of those surveyed believe that 2001 will see margins more similar to those witnessed in the first nine months of 2000. |
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