Crude oil stocks in U.S. at historic highs as American gasoline usage declines

Crude oil stocks in U.S. at historic highs as American gasoline usage declines

By Eric Nalder
Hearst Newspapersdenverpost.com

At midnight on April 11, a 940-foot tanker maneuvered into the dock at the oil terminal in Valdez, Alaska, carrying an unusual cargo for a returning ship.

Sloshing in its tanks were more than 12 million gallons of Alaskan crude, at least a quarter of the cargo the ship had carried away from Valdez two weeks earlier.

The Alaskan Explorer had sailed to a Washington state refinery but was forced to return to Alaska with 300,000 barrels because the onshore storage tanks were too full to accept it, Anil Mathur, chief executive of the Alaska Tanker Co., which owns the ship, confirmed last week.

"Not the normal course of business," said John Kotula, one of the few outsiders privy to the incident because of his position as manager of the state of Alaska's environmental office in Valdez.

The tanker's inability to offload its oil underlines a startling reality: Crude oil stocks in the U.S. have been for the last two years at historic highs, while Americans are using decreasing amounts of its most important product — gasoline. The Gulf Coast is particularly glutted with crude, due in part to a pipeline bottleneck. But federal statistics show another recent development: West Coast refineries are decreasing their production as the domestic demand for gasoline shrinks.

"If there is so much crude oil around, why is the price of gasoline so high? Why is the price of heating oil so high?" asked Dan Lawn, an environmental consultant who was in the same job as Kotula for decades before he retired in 2005.

The BP refinery in northern Washington had been shut down due to a February fire when the Alaskan Explorer arrived there on April 6. But that doesn't explain the tanker's return to Valdez with a big load of oil. Refinery spokesman Bill Kidd acknowledged that in normal times, the ship would have offloaded the remainder of its cargo at a nearby refinery (there are three of them).

Hauling oil to Valdez — a remote town that still supplies a big portion of the West Coast's oil — is carrying the proverbial coal to Newcastle. It is a sign that the American oil industry is in a very unaccustomed place.

Government statistics show gasoline isn't selling the way it used to, and on any given day, crude oil could be backed up in storage tanks ranging from Valdez to the San Francisco Bay to Long Beach.

"Valdez inventories are pretty high. Our inventories are high. Nobody is taking much crude on the West Coast," Kidd said.

So why aren't gasoline prices pushed downward by the forces of supply and demand?

"You've keyed into an interesting puzzle, a paradox," said Richard Newell, professor of energy and environmental economics at Duke University and, until last year, the head of the federal Energy Information Administration, which tracks statistics generated by the oil industry.

The answer, Newell said, is the power of the world market.

"We are tied to the global market, the global price for oil," said Rayola Dougher, senior economic adviser at the American Petroleum Institute. "We cannot secede."

The profitable oil-production industry benefits financially from the fact that it operates within a global market. Fuel conservation in the United States — however laudable— cannot overcome the rising hydrocarbon demand in emerging markets such as China and India, Newell said. The price stays up, even where more local market pressures might force it down.

Nationally, gasoline prices at the pump have risen 30 cents a gallon since March of last year, and more than a dollar in the past two years, according to the Energy Information Administration. The highest prices are mostly on the West Coast.

The Obama administration has proposed better oversight of the commodities market that trades in oil futures, but it is a limited gesture. The markets that set crude prices are different for Scandinavian oil, West Texas crude and Arabian oil. The prices will vary. But as commodity speculators and Asian buyers make their daily trades, the prices these days are relentlessly high.

"The dynamics in the United States are the opposite of what is occurring at a global level," Newell said.

If prices at U.S. gas stations go down — or up— it will be for reasons other than U.S. intervention or our improved driving habits, he said.

Consumer demand for gasoline in the U.S. started faltering in 2005 and has been falling "very sharply" since 2007, said Houston-based oil industry analyst Pavel Molchanov.

"We think (demand) is going to go down in perpetuity," Molchanov said.

"Probably the most gasoline that will ever be consumed in the United States was in 2007, and it will all be downhill from here," Kidd said.

People are driving less because of the recession and the aging of baby boomers, said James Beck, a lead petroleum supply analyst for the Energy Information Administration.

Newer cars get better mileage and are replacing gas-guzzling older ones, and people are using other means of transportation; Amtrak ridership rose 4.5 percent in 2011 to a new high, Molchanov added.

609,000

Barrels of oil a day, on average, that have coursed through the trans-Alaska pipeline this year, just over a quarter of what flowed through it during the 800-mile line's heyday in the late 1980s

11 million

Barrels of oil a day imported to the United States, according to the Energy Information Administration

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