OPEC�s production cuts, in combination with continued strong demand growth exceeding the growth in non-OPEC production have led to declining commercial oil inventories (see chart below). While OECD commercial inventories were 150 million barrels above their 5-year average at the end of September 2006, EIA projects that OECD commercial stocks will be about 10 million barrels below the 5-year average by the end of this year. EIA projects that inventories will continue to decline relative to the average in the first quarter of 2008, and will move toward the lower end of the 5-year range through 2008.
The margin for error has also declined in the downstream sector, as excess capacity in the refining industry has been shrinking with the growth in demand for refined products. Low excess refining capacity leaves less of a buffer for periods when the supply and demand balance becomes unusually tight. Furthermore, low excess refining capacity leaves little flexibility to accommodate unplanned refinery outages.
Geopolitical instability in many OPEC, as well as non-OPEC countries, has put additional upward pressure on inventory demand and crude oil prices. A lack of political stability continues to threaten production in several OPEC nations, including Iraq, Nigeria, Venezuela and Iran. The threat of a possible Turkish incursion against Kurdish rebels in Iraq has added to supply worries.
All of these factors, have combined to cause oil prices to rise significantly in 2007. How high prices ultimately reach will depend not only on these factors, but also the market�s perception of these fundamental factors in the future.
Residential Heating Fuel Prices Increase Sharply Residential heating oil prices attained greater heights during the period ending November 5, 2007. The average residential heating oil price jumped 15.7 cents last week to reach 311.0 cents per gallon, an increase of 72.8 cents from this time last year. Wholesale heating oil prices increased by 13.9 cents, reaching 263.5 cents per gallon, an increase of 87.6 cents compared to the same period last year.
The average residential propane price increased 8.3 cents to hit 233.1 cents per gallon. This was an increase of 39.7 cents compared to the 193.4 cents per gallon average for this same time last year. Wholesale propane prices rose by 6.6 cents per gallon, from 157.5 to 164.1 cents per gallon. This was an increase of 62.1 cents from the October 30, 2006 price of 102.0 cents per gallon.
Diesel Price Sets National and Regional Record Highs The U.S. average retail price for regular gasoline soared to 301.3 cents per gallon as of November 5, 2007, 14.1 cents over last week and 81.3 cents higher than last year. Gains were recorded in all regions with the largest increase in Midwest which rose 17.3 cents to 303.7 cents per gallon, 85.0 cents above a year ago. The East Coast price climbed 14.1 cents to 297.4 cents per gallon while the Gulf Coast rose 15.8 cents to 289.3 cents per gallon, still the lowest regional price. The Rocky Mountain region increased 9.9 cents to settle at 297.2 cents per gallon. The highest price in the country was on the West Coast, 316.5 cents per gallon, a jump of 7.4 cents this week. The average price for regular grade in California was 323.1 cents per gallon, up 7.2 cents from last week and 83.5 cents per gallon over the previous year.