by George Clemen, Industry Analyst
---------------------------------------------------------------------
February 27 , 2008
EIA refining data shows crude oil inputs to crude stills remain low due to slack demand and the usual February maintenance cycle. It's impossible to argue that the short term shut downs of refinery capacity from accidents and/or maintenance is impacting supply because, despite the lower rates, refiners continued to build gasoline supplies. Refinery Operable Capacity reported by industry has not changed for months. It remains at 17.436 Million Barrels per day. During February, refineries were operating at about 84.5 percent of that capacity. Last week, crude oil inputs were 14.624 million barrels per day. Input graph
Refiners are adding to crude oil inventories at a pace similar to the average for past years. To see figure, go to www.oil-gasoline.com
In the past week, refiners added 3.2 million barrels of crude oil to inventories despite a slight reduction in imports and a slight increase in crude feed rates to the refineries. Thus, the build resulted from increased receipts of DOMESTICALLY PRODUCED crude oil, to the economic advantage of US production companies. Crude Oil Stocks The bulk of the increase occurred in PADD 3, the Gulf Coast region, possibly signaling higher receipts from offshore.(What's a PADD?)
Refiners added 2.3 million barrels of gasoline to inventories, bring the level to 232.6 million barrels. Gasoline Stocks This build in inventories occurred primarily in blending stocks -- components of finished gasoline. The extraordinarily high stock levels may make refinery operations somewhat difficult in the near term until the levels are brought back down into the normal operating range. (Think about trying to pour coffee into several full cups) If oil companies insist on holding the line on high gasoline prices, they will have to decrease refining rates or shift emphasis to distillate, which seems the most likely near term solution.
Distillate inventories were drawn down 7.1 million barrels during February to a total of 120 million barrels, leaving room for new product. Distillate Stocks . Except for PADD V, refiners in all other regions are on pace to build distillate inventories early this year. Of course, should gasoline demand take off, which seems highly unlikely, distillate can be upgraded to gasoline.
PADD V, West Coast, refiners have a problem -- way too much product on hand. Imports are at zero, so the only possible adjustments are to either reduce refining rates further, or drop wholesale prices, hoping to move more product. In the current economy, the consumer may be buckling down, so a small price drop may have little impact.
Overall, holding product prices high will push consumers toward conservation, alternative transportation and less spending on other items. One can make the case for forcing the consumer in this direction by looking at the U.S. dependence on crude oil. Last week, the U.S. refined 14.63 million barrels of crude oil. 9.96 million barrels were imported. Thus, the U.S. is dependent on foreign sources for 68 % of its oil. So, while product imports are low, and refining rates are low, it is still the case that we need to take immediate steps toward a more secure energy future. - George
Comments