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Tuesday October 3, 1:59 pm Eastern Time Press Release SOURCE: OPIS Energy Group
Oil Industry Survey Reveals ... 'We're Not Adequately Prepared For This Winter, More Price Spikes Are Ahead, & An Al Gore Presidency Could Negatively Impact The Oil Industry ...' LAKEWOOD, N.J., Oct. 3 /PRNewswire/ -- The worst may still be ahead as spot prices for key refined products in the next year will most likely surpass record numbers seen in the last eight months. That's the conclusion of a large sampling of supply executives contacted by OPIS Energy Group, the leader in tracking and analyzing U.S. petroleum prices and trends, in a mid-September survey.
OPIS surveyed independent refiners, traders, schedulers and buyers two weeks ago, just before the Strategic Petroleum Reserve crude sale was announced. OPIS found plenty of variance in where they see prices this Winter, and into 2001, with a clear sense that extreme volatility will be a fixture for many months.
Most disturbing perhaps is an assessment by oil executives about the preparedness for the upcoming Winter. More than 70% of the supply survey respondents say that the oil industry is ``not adequately prepared'' for the 2000-2001 Winter.
Few executives see an easy solution to the perceived problem. One supplier attests that ``allocation right down to the consumer level is almost a certainty'' and a trader suggested that the government act to ``stop October exports of distillate!'' Many of those questioning the readiness of the industry call for much more aggressive stockpiling, and postponements of Fall refinery turnarounds. Others suggest that the ``high prices will cut into demand'' and let the free market go to work. Still others opine that it is already ``too late'' to address problems brought on by months of inadequate stock builds.
The lack of clear remedies for a Winter supply squeeze is seen in traders' assessments of where prices for N.Y. Harbor heating oil may crest. Executives were asked to pick the likely wholesale price peak for the next year, and the average assessment was $1.77 gal -- about 85cts gal above where N.Y. prices stood on October 1, 2000. Trade people are in essence predicting a heating oil price rally that will exceed the incredible spike seen last February.
Ultimately, more than 40% of those surveyed believe that wholesale heating oil prices will eventually spike above $2.00 gal in the upcoming Winter. A small dissenting group holds the opposite view, which is that $1.00 gal numbers seen in mid-September may be higher than any of the numbers likely in the next twelve months.
Visit the OPIS Energy Group Web site at http://www.opisnet.com/survey.htm to read the rest of the results from this comprehensive Oil Supply Survey, including: predictions on crude oil as high as $51 bbl; more gasoline spikes; why the Shell/Texaco alliance companies of Motiva, Equiva and Equilon garnered the most votes for ``poorly managed'' firms with Crown, Citgo, Coastal, and Sun following closely behind. Plus find out about how API & DOE data stack up against each other, the Gore-Bush election picture; OPEC's future power; buying, trading and selling oil online and much more.
SOURCE: OPIS Energy Group
-- It's the Refinery's Stupid! (whadya@mean?.com), October 04, 2000
October 4, 2000 http://www.nytimes.com/2000/10/04/business/04SHOC.html
Circumventing an Oil Crisis
By RICHARD A. OPPEL Jr. ---------------------------------------------------------------------- ---------- The Associated Press Last month, President Clinton decided to release 30 million barrels of oil from the nation's Strategic Petroleum Reserve, a move considered tame compared with Washington's response to the oil shocks of the 1970's. ---------------------------------------------------------------------- ---------- THe Associated Press This summer, when prices soared above $2 a gallon in the Midwest, consumers got a glimpse of the panic seen in the 1970's. But Midwest prices soon dropped significantly. ---------------------------------------------------------------------- ---------- It seems like an echo of another era.
More than a quarter of a century ago, when the world experienced its first energy shock, gasoline and heating oil supplies tightened, crude oil prices rose more than threefold and industry profits skyrocketed. Today, with the Organization of Petroleum Exporting Countries once again in the driver's seat, gasoline and heating oil supplies are tight, crude oil prices have tripled and industry profits are soaring.
So why have the reactions been so different? The latest oil squeeze, of course, has been considerably milder than in the 1970's and has not been accompanied by the widespread public panic caused in part by the announcement that Arab nations were cutting off oil supplies to the United States. But just as important in explaining the contrast between then and now, analysts say, is how American policy makers have reacted to OPEC's moves.
In 1973, Washington responded to the oil embargo by taking its already draconian system of price limits and other government controls on oil and gasoline and expanding it. Much of that system was still in place six years later, during the nation's second big oil crisis, which followed the fall of the shah of Iran.
Oil company executives were hauled before Congress and skewered over soaring prices and profits, and the government started major price- fixing investigations. Little ever came of those cases, but one piece of wisdom did eventually emerge: instead of making the situation better, the government controls actually worsened the supply problems.
Today, policy makers are striving to work with market forces instead of fighting them. In the debate over President Clinton's decision last month to release 30 million barrels of oil from the nation's Strategic Petroleum Reserve, for example, critics led by Gov. George W. Bush of Texas derided the move as an improper intrusion of politics into the marketplace. And compared to Nixon- and Carter- era controls, it was a tame step.
Despite assertions by some politicians that industry misbehavior may have played a role in this year's high prices, many policy makers have now embraced the idea that markets left to their own devices work better than government controls a notion that, at best, was on the fringes in Washington at the time of the first oil shock.
The United States is not in the clear yet, of course, as it faces winter with very low inventories of heating oil and natural gas. Already this year, after California's recently deregulated power markets threatened to run short of electricity, prices soared and there were calls for reimposing controls on consumer prices.
And, it is difficult to compare the current situation with 27 years ago, when consumers feared not just high prices but that they would not have enough fuel to drive their cars or heat their homes. Then, even though overall supplies fell much less, imports of crude oil and petroleum products briefly dropped more than 20 percent, according to the American Petroleum Institute. By contrast, while overall worldwide supplies have not kept pace with rising demand, current imports are only a bit lower than year-earlier levels.
Furthermore, in the 1970's, sharp changes in the price of oil had a far greater effect on the economy, and inflation, than now.
Still, in most of the country, angst over rising prices today seems surprisingly subdued. "It's kind of curious that we could have this kind of rise in oil prices with as little apparent feeling about it in the United States," said Paul A. Volcker, the former chairman of the Federal Reserve. "Maybe the country is just too prosperous to worry about it."
The energy proposals that Mr. Bush, the Republican presidential candidate, brought out last week including opening part of the Arctic National Wildlife Refuge to exploration and incentives to promote coal and nuclear power could test the willingness of Americans to rebalance environmental and energy priorities in the face of higher prices. For his part, Vice President Al Gore, the Democratic presidential candidate, favors investments in mass transit and incentives to encourage the use of more fuel-efficient vehicles and alternative energy sources.
One leading oil economist, Philip K. Verleger Jr., calculates that the oil price increase since OPEC cut production in March 1999 could cost consumers almost a half-trillion dollars worldwide by next year nearly as much, in inflation-adjusted dollars, as during the oil embargo.
The biggest difference is that in the 1970's the government oversaw price controls on gasoline; set allocation rules that spread petroleum among industries and regions; and, at the beginning of the decade, even maintained quotas on imported oil. All that turned federal officials into central planners dictating much of what industry and retailers were allowed to do. Suspicions abounded, meanwhile, about conspiracies to fix prices or drive smaller competitors out of business fears abetted by the lack of the comparatively open petroleum market that has developed in the years since.
Price controls, instituted in 1971 by President Richard M. Nixon to curb inflation and maintained on the oil industry well after they were abandoned in other sectors of the economy, "were one of the most anomalous episodes in American history," said Eliot R. Cutler, who served for a time as energy czar under President Jimmy Carter. "Here you had this Republican free-market president imposing and maintaining the most elaborate set of price controls Americans had had in any time other than war."
Eventually, he said, the poor results "were viewed as evidence that the free market was a much more efficient mechanism compared to a bunch of government bureaucrats."
The lessons learned during the 1970's had a profound effect on political leaders in both parties, said Daniel Yergin, the chairman of Cambridge Energy Research Associates and author of a Pulitzer Prize-winning history of the oil industry. That was particularly true among those who had always preferred a strong government regulatory role.
"For many Democrats, the shift to a more market-oriented view of the world began with their experience with energy price controls," he said. "That was a major turning point."
As the 1970's began, almost no one in Washington realized just how precarious the nation's oil supply had become. While the nation had imported oil for many years, by far the bulk was produced domestically. The government maintained quotas on imports that had long served to protect politically powerful American producers by limiting cheaper and more plentiful foreign oil. Those were not lifted until early 1973.
But domestic oil production had leveled off in 1970 while demand continued to soar, giving Mideast producers drastic new leverage over the United States. That was made clear in October 1973, when, as the Yom Kippur War began, Saudi Arabia and other Arab nations angrily reacted to President Nixon's military aid for Israel by halting shipments of oil to the United States.
Within weeks, prices for gasoline and heating rose sharply, even with the price controls, as refiners were allowed to pass through the increase in crude oil costs. Some schools shut down to conserve energy; gasoline lines left drivers waiting for hours; and gasoline pedaled under the table in some cases sold for over $1 a gallon.
The price controls and allocations were linked to past profits and consumption. Retailers were supposed to make the same profit margins they previously earned, for example, while doing nothing more than passing on increases in wholesale gasoline costs. And allocations were pegged to prior petroleum sales.
Late in his term, President Carter began the process of lifting the controls, but they were not abolished completely until President Ronald Reagan took action in 1981.
"Part of the reason we haven't had gas lines this year is that there has been no serious exogenous shock to the system like we had in the 1970's," said Vahan Zanoyan, president of the Petroleum Finance Company, a Washington consulting firm. But an equally important reason now, he added, "is that we're letting the market decide the prices."
This year, Mr. Yergin said, the nation experienced a glimmer of the panic seen in the 1970's when prices soared above $2 a gallon in the Midwest. But within a month of prices reaching their peak, the Midwest had the cheapest gasoline in the nation. Suppliers, free to shift gasoline and oil from other parts of the country and eager to cash in on the huge profits refiners were making, flooded the region with fuel, constrained only by transportation needs.
"So often, when you get into really tight markets, what's really critical is logistics," Mr. Yergin said. In the past, price controls and allocation measures "actually did as much as anything to create gas lines by preventing the market from moving supplies around to where demand was a real crisis."
Those controls did not really hurt oil industry profits, however, and by January 1974, the major integrated companies began reporting income gains of 50 percent or more. In Washington, Senator Henry M. Jackson, the Washington Democrat, paraded executives from the nation's seven major oil companies before his Permanent Subcommittee on Investigations, grilling them on television about their role in the crisis.
But profits were not the only thing that made the industry an easy target. Compared with today, the industry was a mystery, with far less data publicly available and no worldwide marketplace that reported crude oil prices. Oil producers would simply post prices, and there was essentially no spot market for crude.
"Everyone was calling for price- fixing cases," Mr. Cutler said, "but there was no evidence of a mass conspiracy."
There were some settlements in the many millions of dollars for violations of price controls and allocation rules, and some states won other settlements from oil producers. But the Justice Department in 1983 ended a six-year antitrust inquiry into the four major oil companies operating in Saudi Arabia because regulators failed to uncover "any remediable violations of the antitrust laws." Two years earlier, the Federal Trade Commission had abandoned a case that had sought to break up the nation's major oil companies on the ground that they had engaged in collusive behavior.
The pricing power earlier enjoyed by the major oil companies, known as the Seven Sisters, began to disintegrate once OPEC began flexing its muscles and demanding higher prices for its crude. Britain sold huge quantities of oil drilled from new fields in the North Sea, further decoupling oil from the old "posted prices" system.
And by the early 1980's, producers, distributors and refiners could trade futures contracts that gave them the right to sell or buy crude, heating oil and gasoline at a set price later on.
"The introduction of these commodity markets changed the whole behavior of the business," Mr. Verleger, a former Treasury Department energy adviser, said. Today, the world consumes about 75 million barrels of oil daily, but as much as a half-billion barrels are traded on some days, estimates Mr. Verleger, who is now at Brattle Group, a consulting firm in Cambridge, Mass.
The current structure of the market still allows for collusive practices; the whole purpose of OPEC is to control supply and, as a result, prices. In the United States, the F.T.C. is investigating complaints by Mr. Gore and other politicians that refiners this summer may have fixed prices in the Midwest accusations the industry has hotly denied.
But while the market responds far more quickly today to match supply with demand, another major structural change in the industry may not turn out so well for consumers, Mr. Verleger said. Major oil companies have steadily been selling refineries to independent operators for a fraction of their replacement cost, leaving these smaller companies, with their higher credit costs and smaller capital budgets, to produce a greater share of the nation's gasoline, jet fuel, heating oil and other products.
These smaller companies, he said, are more likely to keep low inventories of oil and run their plants full blast only when profits on refining are attractive factors that played a role in the low inventories of refined products this year. Moreover, if the United States faces a refining capacity shortage later this decade for new varieties of clean-burning fuels, these companies may be less prepared to deal with it.
The refining market today "is at once both more competitive for petroleum products," Mr. Verleger said, "and much less financially secure."
-- RefinerysStupid Is Stupid (RefinerysStupid@IsStupid.com), October 04, 2000.
Do ya think ya can make your point in something less than the length of a novel there cpr?
-- It's the Refinery's Stupid! (whadya@mean?.com), October 04, 2000.
That is not a novel, BOZO. That is Richard Oppel with AP from the N.Y.TIMES. Better than a freaking Press Release from another Seminar Giver and "Consultant" with a Vested Interest in SPINNING. Your source sells "supply information" to dealers and jobbers. Of course, he wants to make his "information" more "critical". He better try harder. This is one "Crisis" that is OVER.
-- RefinerysStupid Is Stupid (RefinerysStupid@IsStupid.com), October 04, 2000.
That is not a novel, BOZO.
Thats MR. Bozo to you!
Yes...yes...yes. Wonderful article once again CPR. Tell me something though, WAS THERE A FUCKING POINT TO IT?
Kinda like saying your sick and then reading an entire medical library and saying "See that just proves it".
BYE A VOWEL!!!!
-- It's the Refinery's Stupid! (whadya@mean?.com), October 04, 2000.
Um, I'll take an OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
-- consumer (firstname.lastname@example.org), October 04, 2000.