ROSEMONT, Ill. -- As Tom Kloza walked out to "I Can See Clearly Now"--a song that debuted in 1972, the last time the United States was producing more crude oil than today--he said the world is facing a vastly different gas and oil landscape than it has in years past. Specifically, he said oil prices were about 50% less than this time last year.
"I'm used to getting up during this time of year with very high prices in the background and suggesting to you all that prices are too high," the global head of energy analysis at Oil Price Information Service (OPIS), Wall, N.J., told attendees at the NACS State of the Industry (SOI) Summit in Chicago.
"Maybe some of the things we saw in 2014 in terms of the pricing collapses, dramatic volatility and stupid money chasing stupid money will indeed happen again this year,” he said.
One big argument against crude oil pricing returning to $80 to $100 per barrel is the fact that demand isn't what it used to be. The U.S. Energy Information Administration (EIA) shows fuel demand is up 2.9% from 2014, and 3.8% from both 2013 and 2012, but Kloza described EIA collection and reporting process as "very misleading."
"We're just not seeing demand rise to the level of EIA estimates," he said. "Demand is higher, don't get me wrong. But I believe EIA is counting gas exports and gasoline going into storage."
A weekly OPIS survey paints a very different picture. Of the 5,000 stations polled, 53.4% sites said volumes were down versus 2014, 60.7% down versus 2013.
Kloza acknowledged "somewhere in between lies the truth.”
Decreasing demand is a trend that speakers addressed throughout SOI, pointing to more urban-dwellers, fewer young drivers and more fuel-efficient cars. Though lower gas prices should improve some of the demand, Kloza said it's not just about what's happening in the United States.
Fu Cheng-Yu, owner of China's largest refiner, recently acknowledged the possibility that China will hit peak oil demand by 2017.
"That's only China, but when you think about growth and global growth, China has been the cornerstone," said Kloza. "If the conversation changes from talking about peak supply to talking about peak demand, that's really something the industry has to wrestle with."
The combination of historic levels of crude oil production (at least in the United States) and decreasing demand at least suggests oil prices won't fully rebound anytime soon.
For the time being, this has been great news for retailers.
"You're not going to see a year like 2014 that often," Kloza said, pointing to great rack-to-rail fuel margins throughout the latter half of the year, peaking at 35.1% in December. "It has slowed down this year—I don't think we're looking at anything like last year unless we get one of those tremendous downswings, which is possible."
Seasonality is also a reason why we may not be seeing as positive margins in 2015 (margins had dropped to 19.3% as of March 2015). Kloza said the numbers were similar in March 2014, with improvement coming later in the year.
Although it's difficult to predict what oil prices will be in the next five days, Kloza was adamant that the trend for the next five months will be toward lower prices. There are approximately 90 million to 100 million more barrels of crude oil than refined transportation products (gas, diesel and jet fuel), which Kloza said will lead to an over-supply of transportation fuels in the near future.
"We're really going to see a glut of crude oil transferred into something of a glut of refined products," he said. "Cheap oil will prevail for this year and into 2016."
In fact, Kloza anticipates that by the time the NACS Show rolls around in October, oil prices could drop as low as $39 per barrel, and a rebounding to $80 per barrel is a way off.
"The market is going to be biased towards lower prices," he said. "For the remaining SOI meetings in this decade, we're not going to see $80 costs. There's just too much production."
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