With a surplus of crude oil and no agreements on cuts in production from OPEC or anywhere else, we have hit a seven year low, with futures and physical products dropping to levels we haven’t seen since the recession of 2008/2009. Yesterday, WTI settled at a loss of over $2/bbl, falling to $37.65/bbl. Heating oil closed down $0.0628/gal to $1.2796, and RBOB settled down $0.0608/gal to $1.2094.
According to the latest primary customs data from China, crude imports for November grew by 7.6% compared to November of last year. There is optimism that some of the extra supply in the market could be absorbed by the demand of the world’s largest importers such as China and India. But unless China, India or any other emerging markets are able to absorb some of the excess OPEC crude, prices will remain low indefinitely.
On Monday, the Environmental Protection Agency issued the Renewable Fuel Standard which mandates that 18 billion gallons of biofuels be blended into gasoline and diesel fuel through 2016. The current RFS mandate has resulted in E10 blends having already been driven into nearly every market, and unless gasoline demand rises enough to offset new blending mandates, refiners may be required to move E15 or E85 blend sales. The Petroleum Markers Association of America has expressed opposition to the possible introduction of E15 until underground storage tank (UST) compatibility issues are settled. The cost to switch a gasoline station to E15 compatible equipment is about $200,000, a cost that could be detrimental to many single-store owned stations. This concern provided impetus for the EPA to lower the ethanol mandate to the statutory levels set by Congress in 2007.