Thursday March 16, 11:01 am Eastern Time

U.S refiners must hike output to meet demand - EIA

WASHINGTON, March 16 (Reuters) - U.S. refineries will have to operate at 98 percent capacity this summer to supply enough gasoline to meet consumer demand, the head of the Energy Information Administration said on Thursday.

``Because of tight stocks, we are skating on thin ice,'' EIA Administrator Jay Hakes said at a briefing for reporters. Although no shortages of gasoline are expected in the U.S. market this summer, there could be sharp increases in retail prices, especially on the West Coast, he said.

Current U.S. refinery utilization is at 90.1 percent, and Hakes said refineries would have to bump that up to 98 percent to keep up with demand.

If, as expected, the Organization of Petroleum Exporting Countries agrees to increase output March 27, U.S. refiners could have access to any new OPEC oil within five to six weeks, Hakes said.

However, some oil could arrive in the U.S. market within three to four weeks if OPEC members decide to ship oil that they already hold in storage, he said. Further supplies would come from excess production capacity held by cartel members that could readily come online.

Hakes said the excess crude oil production capacity for Saudi Arabia was about 2.5 million barrels per day and Kuwait about 800,000 bpd. The EIA estimated that unused oil production capacity for Venezuela was 300,000 bpd, Mexico was 300,000 to 400,000 bpd, Iran was 100,000 to 200,000 bpd.

Higher oil prices would not ``derail'' the U.S. economy, Hakes said, but they would slow down its growth. ``These prices ... do start to filter through the economy,'' he said. ``There certainly will be some impact.''

http://biz.yahoo.com/rf/000316/vg.html

-- - (x@xxx.com), March 16, 2000

Answers

'Course, with the current shortfall, if they *could* operate at greater capacity, they already *would*. We've been operating significantly below last year's levels for some time now. And it's not as though they *have* to do anything - this is a private industry.

-- Brooks (brooksbie@hotmail.com), March 16, 2000.

True enough. You can't refine what you don't have. The implication is that refining capacity is geared to a steady supply. When external forces cause that supply to fluctuate widely, we don't have the capacity to make up for lost ground. But the alternative is to have a lot of capacity sitting idle most of the time, so it'll be there to handle demand when a glut follows a drought. This is expensive and inefficient for the industry. I doubt they'll build refineries knowing they'll be mostly idle.

The result, of course, is a longer delay between resumption of a sufficient oil supply and a return to lower gasoline prices.

-- Flint (flintc@mindspring.com), March 16, 2000.

Flint, you completely missed the mark. We are not out of crude oil. The refineries are not at higher capacity because they are down, on either planned or unplanned maintenance.

-- Brooks (brooksbie@hotmail.com), March 16, 2000.

Brooks:

No, I knew exactly what you were driving at, and I tried to provide a face-saving way for you to recover. I guess I need to be more direct, so PLEASE READ. We are reading that the pumps are operating fine, and the Saudis et. al. are *stockpiling* crude oil, rather than selling it, in an explicit effort to drive prices up. Refining capacity is sitting idle waiting for these stockpiles to be released.

Now, if you KNOW (because OPEC *announced* it as well as acted on it) that there wouldn't be enough oil to refine to capacity, surely you'd take advantage of the temporary shortage to get some maintenance done, wouldn't you? If crude supplies are down 10%, this means you can rotate 10% of your refining capacity offline at a time for any necessary repairs, upgrades, and other maintenance. And by jove, that's just what we're seeing. Doh!

And it's *still* not economical to build excess refining capacity to handle fluctuation peaks.

-- Flint (flintc@mindspring.com), March 16, 2000.

Flint, your argument isn't supported by the sum of the facts, which you are ignoring. If as you are trying to say we were out of oil (which we aren't ), there would be a massive panic among TPTB and there wouldn't be any question that the SPR would have to be opened.

The OPIS Alerts made it VERY CLEAR that spot and future gas prices were being driven higher principally by announcements of UNPLANNED maintenance in light of an existing inventory shortfall. Capacity is much higher than it was in February because of the fewer ongoing UNPLANNED maintenance outages.

Spare me the heroics, you aren't up to it.

-- Brooks (brooksbie@hotmail.com), March 16, 2000.

Brooks:

I stand by my position. Yes, I agree there has been unplanned downtime. I don't see anything to convince me that this is significant (compared to normal outage incidence). And we know OPEC has been reducing exports. If crude were backing up at the refineries waiting for them to be repaired, you'd have a point. But this has NOT been the case. The rise in oil and gasoline prices simply cannot be traced to abnormal refinery maintenance, to any degree even *close* to causing the effects we've seen. I cannot possibly cure your determination to see what isn't there; all I can do is point out that you are mistaken, your denials notwithstanding.

-- Flint (flintc@mindspring.com), March 16, 2000.

Flint, PLEASE READ the original article - the issue is why inventory is so low, NOT why prices are so high. I'm sorry you have not been following the trade industry at the level of the impact of specific outages on the industry and how this year has compared to others, because that's where the information is. Perhaps you could save face by going back and doing your homework.

There is ample reason to conclude that, since the beginning of the year, the refineries (and in some cases the pipelines) have been the major choke point influencing product inventories and that the industry also believes this - which is why sudden outages have had such a bullish day-to-day impact on the petro market.

I never said we were flush with crude. (Besides, why do you assume that the refineries necessarily buy crude that they can't or won't process? why do you assume that the refineries are the only place that store crude? why do you think that your strawman argument is going to hold up?) I also never said the outages were the ONLY reason the market prices have been increasing.

-- Brooks (brooksbie@hotmail.com), March 16, 2000.

Brooks:

I've read quite a few long articles about the oil situation. They discuss it from an economic perspective (damaging the economies of your customers is a risk you run when you reduce crude exports too much, bad in the long run). They discuss it from a business perspective (when the market is this inverted, profits are maximized by raising prices while running stocks low, rather than paying spot market prices). They discuss it from a political perspective (OPEC is politically toothless if they can't control exports, yet as prices rise the temptation to break ranks becomes irresistable).

Yet in all this, I have yet to see anyone point to the physical inability to refine (due to breakdowns) as a credible factor contributing to the current situation. Do these economists, businessmen and politicians ALL lack your inside information? Or is it possible that you exaggerate one minor element of the picture, to suit your needs?

-- Flint (flintc@mindspring.com), March 16, 2000.

Flint,

Forget already? Bill Richardson asked refiners to delay maintenance because capacity was restricted by unplanned shutdowns.

-- - (x@xxx.con), March 16, 2000.

Refining is a problem.

Gasoline - was by far the strongest element of U.S. markets, boosted by a rising awareness of likely tight supplies this summer. With stocks as of February 25 already 32 million barrels lower than a year ago, outages in gasoline-making units at several major refineries were even more troubling. NYMEX April futures briefly surpassed $1 per gallon, while Los Angeles CARB RFG spot prices neared $1.20.

http://www.eia.doe.gov/oil_gas/petroleum/special/gasoline_update/marke t_summary.html

-- - (x@xxx.com), March 09, 2000.

-- - (x@xxx.com), March 16, 2000.

I have exaggerated nothing, Flint, but thank you for asking.

The information was freely available (until a week ago) from OPIS (www.opisnet.com) - you, too, can join in for $17 per week. This is what you have missed out on, according to OPIS:

"For the past 2 months, we delivered more than 300 vital alerts to thousands of petroleum professionals during perhaps the most volatile period in petroleum history. Subscribers were e-mailed instant coverage of wild spot market gyrations, terminal outages, refinery problems, NYMEX short squeezes, and inventory analysis."

The information has also been available from Bloomberg (refinery outages and oil news), API (statistical comparisons) and DOE (statistical comparisons). Many of these sources are archived on the greenspun, Yourdon and Downstreamer forums, but on a hit-or-miss basis.

The main press has been carrying references to refinery problems and that impact on product inventory on an increasing basis, so it has gained increased coverage in the popular press as well. So I am at a loss as to why you have not come across this information before.

-- Brooks (brooksbie@hotmail.com), March 16, 2000.

x:

I find where Richardson urges refining at 98% capacity to make up for lost ground. I certainly understand how outages under the circumstances become more significant. When you want to refine at the maximum possible rate, *anything* that interferes is bad news.

However, perhaps I'm misreading, but I felt the thrust of what's being said here is that (1) Refinery outages are beyond the normal range; and (2) It must be delayed y2k errors in embeddeds causing this. I've seen no good indication that the first is true, and no HINT that the second is involved whatsoever.

If all that's being said is that there are outages and that when supplies are released these outages will delay a return to lower gasoline prices, then I agree.

-- Flint (flintc@mindspring.com), March 16, 2000.

http://quote.bloomberg.com/fgcgi.cgi?ptitle=All%20Energy%20News&touch= 1&T=energy_news_story.ht&s=5e232f777a2cd9a0e2b751d1fce9a9de

Flint, you're so full of BS. The refiners aren't lacking in raw product (crude oil), they were lacking in the ability to refine it.

-- Brooks (brooksbie@hotmail.com), March 20, 2000.

Brooks:

Here's what your link says:

[Crude oil dropped more than 2 percent to its lowest price in more than three weeks as refiners held off buying, traders said, expecting the Organization of Petroleum Exporting Countries to increase output next month.]

Gee, if the refiners held off buying until prices fell, they would seem to be lacking in raw product. You don't have what you don't buy. Yet you say "The refiners aren't lacking in raw product". Oops.

Now, WHY are they lacking in raw product? Your own link goes on to say:

[Last year, the meeting resulted in an agreement that cut output by about 7 percent and helped prices triple from 12-year lows. That accord expires March 31, and traders are watching for any signs of a consensus for OPEC to pump more oil.]

Gee, this looks like the result of a political agreement NOT to pump so much oil. A reduction in supply relative to demand has resulted in higher prices. Imagine that.

NOWHERE in your link is there even a hint that anyone is experiencing any physical problems with a single part of the oil chain. Not one. Yet you write "they were lacking in the ability to refine it." WHERE does it say anything like this? Your own link supports what I've been saying completely, and contradicts your own contention. Oops.

-- Flint (flintc@mindspring.com), March 20, 2000.

Flint, amazing your ability to get it ass-backwards. The refiners aren't buying raw product because they don't need to - they aren't out of it. Raw product (crude oil) was not the reason the refineries couldn't keep up with demand in January and February. If you had been closely following the market itself at that time you would have known that the problem was an excessive number of breakdowns at the refineries. During that time there were refineries that were BUYING gasoline to RESELL it, which was another market indicator that there was a serious problem. Sorry, Flint, but you can't make up for your forum vacation by coming back with this nonsense.

-- Brooks (brooksbie@hotmail.com), March 20, 2000.

$17.00/week? That's $68.00/month just to READ what ONE organization is saying about petroleum products? That's 3 times what I pay to keep my car in gas each month.

You obviously make a good wage, Brooks, and I'd be the last one to tell you what to do with your money, but [for myself] I'll stick with the American Petroleum Institute reports.

-- Anita (notgiving@anymore.thingee), March 20, 2000.

Brooks:

By now I've read dozens of articles about the oil situation. Not a single one has even *mentioned* refinery breakdowns *including your own link*, much less attributed to these unmentioned breakdowns primary responsibility for a gasoline shortage. Indeed, these articles, *including your own link*, contradict you. It's tautological to say that these many sources support my position, since I *formed* my position by reading them.

Now, of course you might be correct and everyone else wrong. But in that case, I should think you'd be able to come up with a shred of actual evidence. After all, you say yourself that there is "ample reason to conclude" that refinery breakdowns are most important. Would you care to provide a link that doesn't contradict this?

So I'm not saying there's no basis for your claim. I'm saying I haven't seen it, and asking you to provide some. I'm certainly aware that there have been some breakdowns, and of course those facilities cannot refine. I'm aware that the time between availability of crude and availability of refined product is a function of refinery capacity, and every breakdown extends that time. What I am *not* aware of is any good indication that breakdowns are a *significant contribution* to the current oil situation.

And by the way, I can't help be amused that I quote your own article back to you, and you call it "nonsense". In that case, why did you cite it?

-- Flint (flintc@mindspring.com), March 20, 2000.