November 19 , 2007 - Refinery inputs crept upward last week from 86.2 to 87.7 percent of capacity. Refiners processed 15 million barrels per day of crude oil. The increase in production occurred in low sulfur heating oil, diesel and residual fuel oil. Gasoline production decreased.
Even at the slightly higher operating rates, crude oil reserves increased 2.8 million barrels from 311.9 to 314.7 million barrels. Oil Stocks The increase resulted from a 2.1 million barrels receipt delivered on the West Coast, plus the addition of approximately 700 thousand barrels to the Strategic Oil Reserves. Storage in the other refining regions held steady near previous levels.
Gasoline production was essentially flat in total, but decreased in the two major refining centers, the Gulf Coast (PADD III) and West Coast (PAD V), mirroring a decrease in consumer demand at higher retail prices. Gasoline inventories remained flat while imports continued a steady decline. Product Imports
Overall, the US refining industry continues to modify production to stay in line with demand. Financial news reports of extraordinary high demand for gasoline in the US are not founded on fundamental data. Generally, crude oil inputs and gasoline production have steadily decreased since crude oil prices began a significant rise in August. As long as refiners can keep inventories from rising and don't mind modifying outputs to match demand, they should be able to sustain wholesale pricing in the current market. By doing so, they can continue to pay current market prices for crude oil. Theoretically, they could stabilize the market. However, high volatility in the futures markets may well continue to override the fundamentals.
Real market contract prices and virtual refining programs used to determine maximum reasonable prices to pay for crude oil are linked directly to reported spot and futures prices. Thus, despite the theoretical control that should come from real world supply and demand, as long as futures prices continue to increase, real world prices could continue to spiral upward even as demand decreases. Futures prices appear to be being driven by market makers that are not subject to any oversight, operating in a market that lacks transparency. The situation appears to be very similar to the natural gas and electricity market behavior when it was manipulated by Enron and its affiliates in 2000-2001.
Worldwide, the EIA reports that 3rd Quarter Company Financial Reports show lower production and refining rates internationally. Report Some analysts are mistakenly interpreting lower production rates as a sign of lower reserves. crude oil and refined products are liquid and if they are over produced, the excess must be stored. The world has very limited storage capacity relative to production capacity. Operating with full tanks is very difficult. In fact, good operations dictate that production rates should match demand as closely as possible. Thus, it is impossible to determine the availability of crude oil by simply looking at production.
Visit George's Web Site at http://www.oil-gasoline.com
OK George, you have been quite long enough.
Its time for someone (you)
to give another opinion about the future in the oil patch. I thought I had it figured out, thought you did too. But then, everything went to crap.
Where are we headed from here
Posted by: Dave | July 08, 2008 at 06:38 PM