This Week in Petroleum 1-24-08


Not too much to get excited about. Those reports of some refineries coming down early for turnarounds due to low margins look to be accurate, given the drop in refinery utilization. That would also explain the rise in crude inventories, but typically you start to see gasoline inventories coming down as the refineries come offline. Gasoline production did fall, as one would expect as turnaround season begins. However, gasoline inventories increased on the back of very strong gasoline import numbers.

The highlights:

Summary of Weekly Petroleum Data for the Week Ending January 18, 2008

U.S. crude oil refinery inputs averaged 14.9 million barrels per day during the week ending January 18, down 91,000 barrels per day from the previous week's average. Refineries operated at 86.5 percent of their operable capacity last week. Gasoline production moved slightly lower compared to the previous week, averaging about 9.0 million barrels per day. Distillate fuel production fell last week, averaging 4.1 million barrels per day.

U.S. crude oil imports averaged about 10.2 million barrels per day last week, down 233,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged nearly 10.1 million barrels per day, or 0.1 million barrels per day more than averaged over the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 1.2 million barrels per day. Distillate fuel imports averaged 242,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose by 2.3 million barrels compared to the previous week. At 289.4 million barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year. Total motor gasoline inventories increased by 5.0 million barrels last week, and are above the upper limit of the average range. Distillate fuel inventories declined by 1.3 million barrels, and are near the middle of the average range for this time of year. Propane/propylene inventories decreased by 3.3 million barrels last week. Total commercial petroleum inventories increased by 2.2 million barrels last week, and are in the middle of the average range for this time of year.

Pre-Release Commentary

This week’s inventory report will be delayed until Thursday due to Monday's holiday. As we move toward spring, inventory levels will be influenced by 1). Spring turnaround season; and 2). The return of summer gasoline blends. Typically, turnaround season doesn’t really kick off until late February to early-March, but a note from the OPIS report that came out on Wednesday stated “Apparently, the 2008 refinery turnaround season has been launched early, particularly at the U.S. Gulf Coast.” In the face of horrible margins, it makes sense to move turnarounds up and take the outages now, as opposed to later when margins should firm up.

If lots of refiners do push up their turnarounds, we will see crude inventories start to build earlier than normal (which may have already started), and gasoline inventories will start to be pulled down as they were last spring. Gasoline inventories have recovered from the record low levels of last year, and are setting in pretty good shape heading into the turnarounds. Whether we reach $4 gasoline is going to depend on the draw down rate, which last spring was very steep.

Back to the OPIS reports, last Friday’s report contained a very interesting story that I have not seen reported in the media. Here is an excerpt:

A couple of traders and refiners on the U.S. West Coast may have found an outlet for the burgeoning gasoline stocks after fixing two ships to sail to Asia or Australia, industry sources said on Friday.

The West Coast gasoline stocks have reached the highest level since February 2006, prompting some traders to look for outlets in the East Coast in a potentially unprecedented move, and, possibly, the Gulf Coast, Asia, Australia or the west coast of Mexico.

As of Thursday, two ships were booked to load gasoline on the West Coast for delivery to Asia or Australia. Pacific Ruby was booked to load at the end of January, and Wang Chi was fixed to load on Feb. 1. These ships are likely to sail to Singapore or China or Australia.

"Those two vessels were booked earlier this week," a source said. "A few ships were provisionally booked on Thursday for the same voyage, but all those fixtures failed."

Good Resources

It goes without saying that the inventory reports from the EIA are must reads every week for me. There are several other resources that I utilize on a daily basis to keep up with what’s going on in the world of energy. One is of course here at TOD, where the important headlines are usually captured in the daily Drumbeat. The daily subscriber reports from OPIS are a very valuable source of information on the energy markets, and they often contain information that I never see in any publicly available sources. The reports also have daily pricing updates for gasoline (and gasoline blending components), distillates, and ethanol. (I see that spot ethanol prices are headed back up, and are once again higher than spot premium gasoline on the West Coast).

Platts is another good resource that covers a lot of areas that OPIS doesn't. Platts also has a blog, The Barrel, that usually covers supply/demand issues (and links back to both TOD and my blog). Finally, Rigzone usually keeps me updated on the latest exploration and discovery news. One source that I have available with my company is a daily news summary from various categories such as Energy, Oil, Alternative Energy, etc. Sometimes I spot a story there that I find particularly interesting, and I link to the original source and write about it. Anyway, just wanted to share some of the resources that I find especially useful.

Thanks for sharing your list of information resources Robert, very useful!

What's your outlook on domestic refining margins at this point?

What's your outlook on domestic refining margins at this point?

They will have to get better. If they don't, I expect utilization to stay low and inventories to come down faster.

Which means either rising gasoline prices (outputs) or falling oil crude prices (inputs) and I don't think that crude can fall too much from here. Even with the economy teetering on recession we're still seeing around $90 per barrel price. So even a nasty recession might not lower price much lower than mid-$70s. And that would basically mean in a recession that gasoline prices would stay roughly where they are or even rise a bit if crude doesn't drop at all.

I think this trend is telling us that $3.50-$4.00 per gallon gasoline is pretty much inevitable this summer.

Given the 4.5% -8% decline rate (depending on who you believe). That implies that we need to find 6-8mb/day of new production. The wiki oil mega project shows that we can add 6mb/day in 2008 and 2009. Do you think we can make those numbers? I think the ramp up time was not factored into the megaprojects data.

I am sure the ramp up is not factored into the numbers. I understand from Ace that the majority of the 2008 projects are scheduled to come on in the latter half of 2008. Production will ramp up over varying periods (months to years) for each of these projects.

As far as I know, we don't have any information about what kind of track record these estimates have for accuracy either. While these are the hoped for amounts, we don't know whether actual production will ever match the forecast amounts - or exceed them.

seems like a logistic or some kind of exp. curve would be better than a step function.

typo, I meant to say that we need 4-8mb/day of new oil next year.

Interesting that gasoline imports rose when margins are low. Wouldn't that slow down foreign refineries as well? I wonder which countries supplied that extra 1 mbpd of gasoline.

Maybe the US refineries aren't that efficient.

Interesting that gasoline imports rose when margins are low.

The economics of a lot of foreign refiners are different than for U.S. refiners. They are making gasoline as a by-product because diesel is what is demanded locally.

A "waste" by-product, at that. Reminds me of what a power plant operator in the midwest once said to us (in reference to his operational problems), in my "young whippersnapper days:

"We burn coal to produce flyash, and as a waste by-product we happen to generate a little steam and electricity!"

I did a little XL growth, depletion chart.
Note capacity not flows.

Column 1 is the year
Column 2 is 2% annual growth starting @ 91 Million B/D.
Column 3 is 4.5% depletion using previous year’s production capacity.
Column 4 is annual capacity increase.
Column 5 is annual depletion using previous year’s production capacity.
Column 6 is total new annual capacity required to maintain real annual growth shown in column 2.

2008 -91.0 -91.0 -0.0 -0.0 -0.0
2009 -92.8 -86.9 -1.8 -4.1 -5.9
2010 -94.7 -88.6 -1.9 -4.2 -6.0
2011 -96.6 -90.4 -1.9 -4.3 -6.2
2012 -98.5 -92.2 -1.9 -4.3 -6.3
2013 100.5 -94.1 -2.0 -4.4 -6.4
2014 102.5 -96.0 -2.0 -4.5 -6.5
2015 104.5 -97.9 -2.0 -4.6 -6.7
2016 106.6 -99.8 -2.1 -4.7 -6.8
2017 108.8 101.8 -2.1 -4.8 -6.9

The sum of column 6 is 57.7 Million barrels per day of new capacity in the next 9 years.
Can we avg. 6 to 7 million barrels of new production for 9 consecutive years?

Perhaps we are overflowing with "burgeoning gasoline stocks."

Supplies are at 220.3 million barrels. That’s awfully high. I have to guess that the supply tanks are, indeed, burgeoning. Those are hefty stocks.

The EIA gasoline numbers show "conventional gasoline" stocks down 8.4% year over year. They are close to 2004 inventory numbers. The blending components have been rising and are now 9.6% year over year.

Perception is that gasoline stocks are rising, but if you can't immediately burn those blending components in your gas tank without either further refining or blending, they may be distorting a much more important shift downward of conventional gasoline.

On another note, the Pacific Ruby and Wang Chi Tankers are not VLCCs. Together, they have a combined export capacity of about 650,000 barrels. That isn't moving much capacity. Had they been VLCCs or indicated that they would become daily flows outward, they would command notice. The millions of barrels per day of gasoline, distillate and crude we import dwarf them. Either someone reported an insolated issue on a location or commodity type or they are trying to sway market perception.

Before criticising these imports, we should remember that in India there are 420 million people with no access to electricity. How can we tell them not to use coal, which is the cheapest way of providing electricity?

They shouldn't be TOLD to do anything. They should be presented/provided with a more desireable alternative, for both them and everyone else.

By diverting about 10 seconds worth of the funds spent in the world economy each day, the Atmospheric Vortex Engine technology ( could be developed and presented/provided to them. In all likelhood, even if it were GIVEN away to India and China, everyone would come out ahead, not only in reducing coal demand, but by reducing GHG emission.

There is plenty of Convective Available Potential Energy on both the Indian and Chinese subcontinents to power this technology and provide abundant, low-cost electricity.

What have we got to lose?


"Total commercial petroleum inventories increased by 2.2 million
barrels last week, and are in the middle of the average range for this time of
year." EIA

Total net imports based on a four week average ending 1/18/08 were 1.512 million barrels more than for the same week last year. There was a total stocks build of 2.2 million barrels. There was a net drop in imports used year to year indicating a slight downtrend in demand due to higher price, a slowing economy, and gains in domestic natural gas liquids processing. Excess commercial petroleum/products supplied went to increased inventory.


We read the same stuff. Let me add to the resource list just a little for others. From Rigzone, you can access Downstream Today .

Another info source I'm signed up with is EnergyCentral which provides an assortment of accessible articles if you deal with utilities and the energy/power distribution sector, as I do.