Posted on 04/26/2006 10:26:56 AM PDT by topher
THIS WEEK IN PETROLEUM
Understanding Gasoline Inventories
With the dramatic drop in total gasoline inventories over the last few weeks (see Figure 4 in the Weekly Petroleum Status Report (WPSR) or put your mouse on the word “Gasoline” in the stock chart to the left of this report), some analysts may be wondering if EIA is picking up all gasoline inventories during this transition from Methyl Tertiary Butyl Ether (MTBE) reformulated gasoline (RFG) to ethanol RFG, since ethanol is not blended into the gasoline mixture until just before the gasoline gets shipped to the retail stations. Other analysts wonder if the drop is related to terminals getting rid of their winter-grade gasoline to make room for the summer-grade gasoline. And others are still just a little unsure about the difference between Reformulated Blendstock for Oxygenate Blending (RBOB), the base gasoline that needs to be blended with some type of oxygenate to be turned into finished RFG, and finished RFG itself. This week’s commentary reviews EIA’s methods and terminology and provides some analysis regarding the “story” being told by gasoline inventories.
EIA reports petroleum inventories only at the “primary” level, which includes refineries, pipelines, and terminals, but excludes retail stations and consumer-level storage. EIA provides inventory level information both for finished gasoline (gasoline ready to be used in vehicles) and blending components (gasoline blendstock that still needs something added to it to become finished gasoline). Because gasoline blendstock can, in most cases, be quickly blended into finished gasoline, most gasoline market analysts prefer following total gasoline inventories, as shown in the chart linked at the top of this report.
But, sometimes, there are interesting stories buried in the breakdown of total gasoline inventories. In EIA’s terminology, RBOB that is intended to be blended with MTBE is listed as RBOB with ether, while RBOB that is intended to be blended with ethanol is listed as RBOB with alcohol. Many analysts have been watching the changes in finished RFG and RBOB with alcohol stock levels (see the chart below). With much of the East Coast (and parts of Texas) converting from using MTBE RFG to ethanol RFG, we have seen a shift taking place between finished RFG and RBOB with alcohol, as the graph below indicates. Terminals have been reducing their inventories of finished RFG, which is most likely winter grade gasoline, in order to make room for RBOB with alcohol. As the anticipated phase-out of MTBE progresses, finished RFG inventories are expected to virtually disappear. The chart below confirms what many analysts expected to see during the transition.
But analysts have also wondered if EIA’s total gasoline inventories are fully reflecting the transition to ethanol RFG, since ethanol is blended with RBOB further down the supply chain, and EIA does not collect ethanol inventories except on a monthly basis. When MTBE was blended into the gasoline at the refinery level and then shipped via pipeline, it was included in both finished and total gasoline inventories because it was already co-mingled with the gasoline. However, prior to ethanol being blended with RBOB, only the RBOB is included in total gasoline inventories, while the ethanol is included in the “other oils” category.
Although EIA only collects data on actual inventory levels for ethanol on a monthly basis, it is implicitly included in EIA’s estimate of weekly “other oils” inventory levels.
SEE Figure 4 - PDF Document - Click here to View
Ironically, it is not OIL that is causing the problem but the method for how gasoline is being refined may have something to do with gasoline supplies.
Figure 4 in the Weekly Petroleum Status Report (WPSR)
The chart does show a dramatic drop, but I am not sure why...
bttt
Alcohol (ethanol) is apparently added elsewhere, and I guess this is hard for the DOE to track (supplies of Ethanol).
Maybe the oil companies are headed into the moonshine business to brew up some alcohol... [attempt at humor]
Oil is not the problem - it's the government messing with the formulae for gasoline.
The unblended stuff, the "RBOB" in this story, will work just fine in your car, but the EPA tries to squeeze out just a tiny bit better exhaust gas by putting oxygenates in the fuel - adding more oxygen than is availabel in the air - but the primary compound MTBE has been demonized throughout California by those who ride bicycles to work and think they've found another way to kill the automobile.
[And this whole "oxygenated fuel" business comes perilously close to being junk science in the first place: what is barely detectible in the lab is nearly unverifiable in actual cars on actual roads.]
So the MTBE makers are being sued, the EPA refuses to protect them, and the makers have said, "fine, we'll just stop making the stuff."
That leaves us with ethanol, a compound that we can't make fast enough, and which the government taxes at the rate of $.54 per gallon (!) if it's imported.
Not to mention the fact that ethanol has about half the heating value of gasoline, so your fuel economy will suffer accordingly as it's blended into gasoline - but the pricve isn't going to go down, is it?
And most of us driving older cars are going to experience various fuel system problems as the ethanol attacks any plastics and rubber materials it can find, as well as removing any sludge or deposits in encounters.
Stock up on fuel filters!
It's assumed that prices are headed higher. In similar markets I kept tanks full. If prices were dropping I held as little inventory as possible.
This report turned out to be very technical this week...
Someone once said Pray, Hope, and don't Worry!
Sounds like good advice...
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