Refinery Outages and Gas

**Red Harvest** · 09-02-2005, 07:07

Originally Posted by Xiahou

I'm with Gawain again.

This shows how tight our refining capacity was in the US. With this many refineries offline we're in some serious trouble, considering that most were running near or at capacity before hand.

We already knew how tight it was in the U.S., it's been that way for awhile.

This event shows that refineries weren't the oil production restriction before, so it proved the exact opposite of the refinery limit hypothesis you both were touting. The refinery outages are now effecting gasoline, but not oil price. The oil price change is far smaller and due to a shorter term oil production disruption. Contrast this with Ivan that effected oil, but not refining.

More U.S. refining capacity will help reduce U.S. gasoline price spikes due to refining outages, but not reduce oil cost because U.S. oil refining capacity is not setting oil prices.

**Papewaio** · 09-02-2005, 07:12

If the US refinieries cannot process as much... does that mean the demand for crude will be down and cheaper prices for the rest of the world?

Don't think so as the companies will gouge as much as possible...

**Xiahou** · 09-02-2005, 07:40

Originally Posted by Papewaio

If the US refinieries cannot process as much... does that mean the demand for crude will be down and cheaper prices for the rest of the world?

Don't think so as the companies will gouge as much as possible...

Well, then as now, oil futures speculation is a significant portion of both oil and gasoline prices. The debate is how much of a premium that speculation is causing. Many economists predict that the oil market is in a bubble- I heard one predict today on the radio that oil prices will drop back down to the $30-40/barrel range sometime in the near future. I find that a little optimistic myself. However, before Katrina, with growing inventories, I was expecting to see some significant drops in gas/oil prices after the holiday weekend- but with so many refineries out... the situation has obviously changed.

**Red Harvest** · 09-02-2005, 08:15

Originally Posted by Papewaio

If the US refinieries cannot process as much... does that mean the demand for crude will be down and cheaper prices for the rest of the world?

Don't think so as the companies will gouge as much as possible...

It could. There is a chance that this will start a recession in the U.S. with a ripple effect in China and elsewhere. It is hard to say. I'm not sure if we were really poised for a recession. If we were, then I would expect Katrina to drive it or ignite it. Recessions usually reduce the growth in oil demand, thereby stabilizing or reducing prices.

On the other hand Katrina just made the housing market much tighter in some of the weaker areas. And rebuilding will have some stimulatory aspects so that could offset some of the major negatives from disruptions. This might also impact confidence of outside borrowers of U.S. debt or equities, which would not be pleasant for us.

There are quite a few concerns about the U.S. economy, growing debt, both govt. and personal, home values far exceeding replacement cost in many areas (potential paper wealth that could blow off), energy prices, and massive trade deficits. So far the economy is shaking these off.

**Gawain of Orkeny** · 09-02-2005, 14:42

This event shows that refineries weren't the oil production restriction before, so it proved the exact opposite of the refinery limit hypothesis you both were touting. The refinery outages are now effecting gasoline, but not oil price. The oil price change is far smaller and due to a shorter term oil production disruption. Contrast this with Ivan that effected oil, but not refining.

Wow for a while there I thought yu knew what you were talking about. The price of oil and gas are tied to eachother. Again do you think there was a sudden drop in gas supplies overnight to cause a 50 cent jump in the price. No . Its because their looking at the future and a coming shortage due to the inability to refine crude. If we had buit more refineries and oil wells once more we wouldnt be in this situtation. You can run on such a small margin of error. You earlier claimed that refeineries were ONLY running at 95 to 98 percent capacity. This doesnt leave much room for disruption.

**Strike For The South** · 09-02-2005, 14:44

3.30 in houston jeez its still only 2.69 here sad 10 years ago it was 99 cents

**Sjakihata** · 09-02-2005, 15:07

here in denmark, gas prices are insanely steep: $1.85162 for 1 litre of gas. That's DKR 11.

**Red Harvest** · 09-02-2005, 18:41

Originally Posted by strike for the south

3.30 in houston jeez its still only 2.69 here sad 10 years ago it was 99 cents

That 3.30 seems limited to a few stations now. The others are running about 2.79 to 3.00 at the moment. Houston tends to be a little higher than some areas, I think it is the required blends, but I'm not sure. The gasoline market is not my thing.

**Ser Clegane** · 09-02-2005, 18:46

Originally Posted by Red Harvest

That 3.30 seems limited to a few stations now. The others are running about 2.79 to 3.00 at the moment. Houston tends to be a little higher than some areas, I think it is the required blends, but I'm not sure. The gasoline market is not my thing.

I talked to a colleague in North Carolina today and she mentioned that there were quite a number of gas stations actually running out of gas there

What share of the refinery capacity is currently effected?

I heard ballpark numbers in the range of 20% of capacity but that was rather hearsay...

I guess we will see quite some price peaks on the petrochemicals spot market as well over the next weeks/months

**Gawain of Orkeny** · 09-02-2005, 23:18

Gawain, Read what you just wrote and think about it for awhile. As I said before the price of OIL was not being limited by refining. You bought the Saudi line. If we shut off refining in the U.S. enough, oil prices worldwide will fall, because we are an net importer, and this would reduce our need for imports. Myth Busted.

Thats what you claim I say the opposite. So your saying if we shut off refining here the price of oil worldwide will go down? Have you lost your mind? How will that make us need less gas. It means we will have to import all our oil and refined products instead of a bit more than half as we currently do now driving worldwide prices through the roof. Hell according to this logic we should have shut them down a longtime ago. Myth busted.

**Red Harvest** · 09-02-2005, 18:14

Originally Posted by Gawain of Orkeny

Wow for a while there I thought yu knew what you were talking about. The price of oil and gas are tied to eachother. Again do you think there was a sudden drop in gas supplies overnight to cause a 50 cent jump in the price. No . Its because their looking at the future and a coming shortage due to the inability to refine crude. If we had buit more refineries and oil wells once more we wouldnt be in this situtation. You can run on such a small margin of error. You earlier claimed that refeineries were ONLY running at 95 to 98 percent capacity. This doesnt leave much room for disruption.

Gawain, Read what you just wrote and think about it for awhile. As I said before the price of OIL was not being limited by refining. You bought the Saudi line. If we shut off refining in the U.S. enough, oil prices worldwide will fall, because we are an net importer, and this would reduce our need for imports. Myth Busted.

There is not a huge supply of gasoline just lying around in each region. If you want to weather spikes you will need to do something about that.

You can go on with the line about building refineries in the U.S., but it doesn't make economic sense to those running them. As they see the need for capacity they add it. If you can make a business case for big new refineries, be my guest... That isn't the way business works in this country, we've been increasing productivity to the nth degree or don't you remember? Just in time deliveries, decreasing inventory, maximizing capacity utilization. These are the market efficiencies business strives for. You want them to reverse course. GOOD LUCK!!!

**Don Corleone** · 09-02-2005, 18:32

Red, I hear what you're saying, and you're making some good points. BUT (there's always one

) you're not taking into account artificial market constraints. The people who run the refineries have been trying to build new refinery capacity for 15 years, and every time they do, the Audobon Society and the rest of the usual suspects gangs up to strongarm some judge into issuing a legal ruling to block the construction. Or the EPA yanks permits for no good reason. Or a bunch of other hamstring efforts. I agree with your reasoning, but you're overlooking some critical external factors that are preventing market forces from operating properly.

**English assassin** · 09-02-2005, 18:45

Originally Posted by Don Corleone

Red, I hear what you're saying, and you're making some good points. BUT (there's always one

) you're not taking into account artificial market constraints. The people who run the refineries have been trying to build new refinery capacity for 15 years, and every time they do, the Audobon Society and the rest of the usual suspects gangs up to strongarm some judge into issuing a legal ruling to block the construction. Or the EPA yanks permits for no good reason. Or a bunch of other hamstring efforts. I agree with your reasoning, but you're overlooking some critical external factors that are preventing market forces from operating properly.

For real? I was just going to do a post pointing out (well, repeating, really) that its most ecomonically efficient for a corporation to sweat its assets, so a free marketeer really shouldn't expect the USA to have, say, a spare 25% of capacity sitting idle just in case a once in 100 years storm hits. But if the refimeries were in fact pressing for more capacity before (presumably not in the gulf), I will shut up.

I doubt it will affect us much in the UK, since only about 20% of our petrol price is the cost of the actual petrol anyway. Whoop de whoop, for once paying high taxes is great. errr