North American Crude Prices to Drop in 2013, Volatility Remains

TomKlozaatTheNATSOShowIA

Cheaper crude throughout North American in 2013 coupled with the cheapest natural gas globally will result in lower prices that benefit U.S. consumers and retailers, but volatility within the fuel market will remain, said Tom Kloza, chief oil analyst for the Oil Price Information Service.

“I think in general it is going to be a more temperate year with some spikes and some drops,” he said. Kloza made his remarks here during The NATSO Show in his keynote address titled “A Kinder, Gentler 2013.”

The spikes could come fairly early in the year. “We’ve gotten by so far this winter without the brutal temperatures in areas that use heating oil. I believe in the next 90 days we have the best chance ever to see diesel prices go from $3.50 a gallon to $4 a gallon,” he said.

Domestic production of crude is on the rise and Kloza called the outlook for U.S. crude “blisteringly good.” He said, “We just passed the highest crude oil production in the U.S. that we’ve seen since March 1993. We have 7 million barrels a day of production and that number is likely to go higher.”

He told attendees that U.S. crudes, particularly in the North Dakota region, are cheap versus offshore blends, but they come with some challenges. “All of this oil-shale crude is incredibly light. There is very little sulfur in it. With crude oil that isn’t necessarily a good thing,” he explained.

The most highly prized molecule—diesel—won’t be as easy to manufacture until refineries invest in some additional equipment. In addition, the refining process produces more propane and butane even though prices are well below break-even for crude processors. The crude will also yield more gasoline, which Kloza said likely will be a surplus product for seven to eight months out of the year.

Just-in-time inventory will be one major contributor to price volatility over the next 14 months, Kloza said. Shallow product inventories are quick-to-fill, but also quick-to-empty and storage per capita is a mere fraction of what it was in 1975-1985.

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