Posted on 07/29/2005 2:00:41 AM PDT by RWR8189
SINGAPORE (Reuters) - Oil prices rose above $60 on Friday to their highest level in more than two weeks as refinery fires in the United States revived fears of tight supplies.
U.S. light sweet crude for September delivery was up 45 cents to $60.39 a barrel in Asian trade, off an earlier high of $60.42 triggered by news of a fire at BP's giant Texas City refinery, the country's third-largest. Prices were just 2.7 percent below record-highs of $62.10.
London Brent crude was up 50 cents to $59.26 a barrel. BP said the fire at a 60,000 barrel-per-day (bpd) residual hydrotreating unit had been brought under control. Though the unit was forced down, the fire was unlikely to disrupt production elsewhere at the plant.
Yet it underscored the market's sensitivity to any outages.
"People are looking at the fear of disruption in gasoline supplies," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures.
U.S. inventories of distillates such as heating oil and diesel rose 3.1 million barrels last week, the 10th gain in a row.
But gasoline stocks fell more sharply than expected, raising questions about whether refiners could meet peak summer driving demand at the same time as stocking up on winter fuels.
U.S. gasoline demand in the last four weeks has averaged 2.4 percent higher than a year ago and distillates demand is running strong at 3.6 percent over last year, U.S. data showed.
A fire at Murphy Oil's 110,000-bpd refinery in Louisiana earlier on Thursday forced the company to shut an 18,000-bpd kerosene hydrotreater, but its spokesman said runs should not be affected.
Crude oil stockpiles remain in the upper part of their seasonal range, but an active start to the hurricane season has focused attention on the vulnerability of Gulf of Mexico supplies, which account for a quarter of U.S. production.
Seven named storms this year, including two hurricanes, have so far shut in some 6 million barrels of U.S. production.
ASIA LESS BUOYANT
Dealers noted that soaring oil prices were starting to undercut demand in Asia, forcing refiners to reduce operations and economists to revise down growth forecasts.
Giant South Korean oil refiner SK Corp. will cut its planned crude processing rate for August by 4 percent due to weak refining margins, a company source said, following the lead of Chinese and Japanese rivals.
"It is very difficult to buy at over $60 to be honest," Emori said. "Cycle-wise, commodity prices should be going down but funds are still looking to buy."
In Japan, top refiner Nippon Oil Corp. said it would keep running at reduced rates in August of 974,000 bpd, 7 percent less than a year ago and well below its 1.2 million-bpd capacity.
A Reuters poll of more than 100 analysts on Thursday showed that with the notable exception of India and China, who are expanding more quickly than expected, high fuel prices and sluggish exports were hurting growth around Asia.
Call me stupid, but shouldn't a refinery fire depress the price on crude oil instead of increasing it? The folks who write these articles are just making it up as they go along.
A refinery being out of operation reduces supply, and would tend to make the oil more scarce...increasing the price.
Crude oil is the input for the refinery. If the refinery explodes, demand for crude oil decreases, because refining capacity decreases.
The price of gasoline will go up, but the price of crude should go down. This excess money should lead to an increase in investment in refinery capacity, but nobody is allowed to build refineries anymore.
BOHICA
Refineries buy crude oil and make gasoline with it. Fewer refineries means less demand for crude oil if the remaining refineries are already running at capacity, which they are. So oil is less scarce. Lose a refinery and gas price goes up, refinery profits go up, but crude price should go down because there is less demand for crude oil.
If all the refineries went away tomorrow the arabs would have no one to sell their oil to and the price of oil would fall until new refineries were built and the demand for crude was restored.
I just wonder how much longer America can keep a lid on inflation. Without cheap Chinese goods, we would be in serious trouble already. Better be praying folks, better be praying hard.
"If all the refineries went away tomorrow the arabs would have no one to sell their oil to and the price of oil would fall until new refineries were built and the demand for crude was restored."
Most likely it's just my iggernunce at work again, but this tends to support my crackpot theory that the only reason oil is so high in the first place is that Ibn bin Rag-On-His-Head decided to jack the price up, just because he can.
New domestic refineries are required but there has to be incentives to get them constructed.
?......Chinese Communist Military Oil-Worker-Troops (ala Sudan) are .....NOW.....in Colorado......on U.S. taxpayer payroll....?
Colorado to have the cheapest oil/gas prices at the pump in the whole world?
Communism at 'work'....?
British Control of world's refineries also to help bring about cheaper colonial.....'Texas-tea-tax'..... for all Communists?
/sarcasm?
Pray? It's time we got up off our behinds and did something for ourselves instead of paying the Chinese to do it.
"If the refinery explodes, demand for crude oil decreases, because refining capacity decreases."
I'm not sure I understand your logic here. If a refinery explodes... does that mean that 10,000 people in Hartford Ct will not have to go to work the next day?
These people still have to hop in their cars and go to work.
The demand for crude is slowly rising....if you take three large refineries offline... the demand will still be there....the amount of product available for consumption will have dropped thus increasing the price.
Refineries are, by and large, operating at capacity. So if a refinery explodes, that is less crude that can be refined. Therefore demand for crude goes down.
I've worked at both those refineries. Actually worked the project that built that BP (was Amoco then) Resid Unit back in 1983/84 and when back and did a turn around (rebuilt the thing during an outage) in the late 90s.
The Resid Unit basically recycles and cleans up "residual product", something like roofing tar so that it can be refined into more useful products (ie: gasoline, diesel, jet & av fuels, etc.). BP can just pump their excess resid across the street to Valero or Marathon refineries to be processed... The primary stream of refining isn't going to slow much if any.
Murphy Oil is a tiny refinery at 110,000 bpd. All they lost was their Kero finishing unit. They can sell the unfinished kero to one of the othe Louisiana Refineries.
These are going to affect the profit margines of the individual plants more than the real supply of fuels.
Most likely it's just my iggernunce at work again, but this tends to support my crackpot theory that the only reason oil is so high in the first place is that Ibn bin Rag-On-His-Head decided to jack the price up, just because he can.
_________________________________________________________
Remember the movie line (was it "Network") that went "We are the Arabs stupid!"...
ArAmCo is the Arab-American Oil Company...
All,
The reason you aren't seeing more refineries being built is EPA permitting. The refinery that is proposed for Western Arizona is taking years to get permits, if they ever give the go ahead. The profit incentive is there .gov is the problem.
Refineries are, by and large, operating at capacity. So if a refinery explodes, that is less crude that can be refined. Therefore demand for crude goes down.
OK, perhaps I'm REALLY thick this morning.... can we apply your theory to food?
Food producers are operating at capacity. Every one who needs to eat...is currently eating. Oops... one of our food production stations is offline. We currently can not feed all the people in the world today. From this day on, until we get that darned food production facility back online... people will go hungrey and likely starve.
Ok, in the above hypothetical scenario...
has "demand" for food decreased because a food production station has ceased to produce? Wouldn't LESS food being made available for the same given number of "eaters" mean that the available food would be worth more money?
Again, I'm not trying to ruffle your feathers here.... just trying to understand how you can come to your conclusion.
Your error results from the fact that people are buying refined petroleum products, not crude oil. The only customers for crude oil are oil refineries. The demand for crude oil is currently limited by the amount of refinery capacity available, because the refineries are operating at capacity. Therefore, any drop in refinery capacity leads to a decrease in the demand for crude oil. This decreasing demand should lead to falling prices for crude oil, not an increase.
But my original point was that the author of this article is just making it up as he goes along. The price of crude oil went up, and the author is just speculating as to what may be the reason. To blame the increased price on a refinery fire is just silly, because a refinery fire would have the opposite effect on prices.
If the raw material (crude oil) is less in demand because a refinery that consumes it is disabled, shouldn't the price go down?
"Remember the movie line (was it "Network") that went "We are the Arabs stupid!"... "
No, but I remember OPEC nations colluding to raise prices.
"If the raw material (crude oil) is less in demand because a refinery that consumes it is disabled, shouldn't the price go down?"
Yes, it should, and that's what makes me think that the oil-producing nations are just jacking up the price arbitrarily, because we have placed ourselves at their mercy.
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