Monday, May 29, 2006

Refining capacity :: AP
New refining capacity of at least 6.5 million barrels per day over the next decade could shave two or three dollars from the price of a barrel of crude oil. Americans might see a 5-10 cent reduction in the price of a gallon of gasoline, Rathvon said. But most new refineries are being built outside the United States - mainly due to opposition to refinery construction by local communities near proposed sites.
A simple question: How does the new refining capacity compare with existing capacity? The article does not say. It should if we are to have some idea of how significant an increase in capacity is planned.

Here is what the US Energy Information Agency says about oil refining:
Broadly speaking, refining developed in consuming areas, because it was cheaper to move crude oil than to move product. Furthermore, the proximity to consuming markets made it easier to respond to weather-induced spikes in demand or to gauge seasonal shifts. Thus, while the Mideast is the largest producing region, the bulk of refining takes place in the United States, Europe or Asia.
. . .
U.S. refining capacity, as measured by daily processing capacity of crude oil distillation units alone, has appeared relatively stable in recent years, at about 16 million barrels per day of operable capacity.
. . .
The largest concentration of refining capacity is in North America (in fact, the United States), accounting for about one-quarter of the crude oil distillation capacity worldwide, as shown in the graph, and as discussed more fully below.
. . .
In general, refining has been significantly less profitable than other industry segments during the 1990's.


Blogger Slagothor said...

The first sentence of the first quote is economic nonsense. Extra refining capacity = outward shifting demand curve for crude. That means HIGHER crude prices, boys and girls (ceteris paribus, and all that.)

More refining means smaller refining margins. Might drop the price of petrol a hair, but certainly won't affect the price of crude the way the article says it will.

8:26 PM  
Blogger John B. Chilton said...

It is economic nonsense isn't it?

Indeed, if refining capacity has been lagging behind growth in demand for refined products that has dampened growth in derived demand for crude holding down price increases for crude.

4:57 PM  

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