BUSTING the myths being spewed by the Energy PermaBulls ~
PermaBulls do NOT understand even the most elementary Refining Capacity relationships to how supply:demand:refining capacity metric's relate to either rising, or declining inventory levels.
Taikun re your comments of:
["In looking at those slides I see utilization numbers in the 90% area, up to 97%. The lowest number, 74%, is from 2003 in Asia.
Most industries run at 70% utilization rates, to accomodate repairs and maintenance. It is true that the refining industry 'might be different', but looking at a 97% utilization rate and extrapolating that capacity exists is dangerous. The industry is already more than 30% above the normal range for most sectors, and that is 70%."]
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Taikun; I am not trying to make this personal...as not just you, but 99% of the Energy Bulls here don't have the basic mathematical concept, or clue; as to how Refining Capacity relates to Supply:Demand balance and at what Capacity level; rising, or declining inventory fundamentals will result.
- for this; PermaBulls should be chastized to the 10th degreee !
Taikun your 70% Capacity theory comment is ....well; embarassing.
It should also be embarrassing whenever we see, or hear any pundit talk about our inability to refine supply to meet our, or Asia's demand... like Don Coxe just did on CNBC.
That is 110% WRONG !
Coxe is speaking over his head; beyond his level of expertise AND competance...referring to Refining metric's and fundamentals he clearly doesn't understand.
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First; re: IEA / DOE comments:
["On the issue of refining capacity, some analysts suggest that with U.S. refinery capacity utilization at 95-96 percent in recent weeks, there is little room for a significant increase in gasoline production.
THIS IS INACCURATE (my caps) - there have been times in the past when weekly refinery utilization has even exceeded nameplate capacity, much less reached the *98 percent utilization rate.
An increase in the utilization rate of 2 percent equates to an increase in refinery production of about 340,000 barrels per day, and if half of that were gasoline, 170,000 barrels per day of additional gasoline would be available.
This represents more than *5 million barrels in a month, a sizeable increase in such a tight market.
Market observers made an inappropriate comparison of world petroleum demand and world refinery capacity.
<INAPPROPRIATE (read wrong!) comparisons - remember this concept >
Petroleum demand is met by natural gas liquids, other hydrocarbons and oxygenates that do not depend on refineries.
<read this as many times as it take to understand it <vbg>
Everyone has been noting the increase in demand world wide, and in particular the unexpected jump in demand 2004. Along with this increase, we naturally see increases in refinery utilization, which causes people to check how much refining capacity remains.
A balance of 83 million barrels per day of refinery capacity against 82 million barrels per day of oil product demand "SEEMS" to imply a very tight situation.
<keyword/concept being "seems">
But that demand includes products being supplied from outside the refinery system...ie:
*Gas liquids and other hydrocarbons and oxygenates contribute more than 10 percent of supply volume.* "]
< 10% of supply comes from non-refinery output !!! - a fact seemingly lost on the PermaBulls !?!?!? >
For example:
We could have 109 Million bpd of demand
and have only 100 Million bpd of Refining Capacity
ie: Demand could be at "109% of refining capacity"
...and guess what ?
- we could still be building surplus inventories by suppling 10-11 Million bpd from non-refinery capacity !
People can be right that Oil is going up...but, that doesn't mean they have the faintest F#$%'n clue - as to WHY it is...
Speculation by any other name....is still SPECULATION.
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The secondary point; You are focusing on percentages and don't realize how much actual output each remaining - 2% of Refining Capacity is.
Each 2% of remaining US Refining Capacity allows an additional 5 MILLION barrels per Month of additional Gasoline output... that is SIGNIFICANT.
- 4% remaining capacity allows an additional 10 Million barrels per month of Gasoline.
- 6% remaining capacity allows an additional 15 Million barrels per month of Gasoline.
...that is just from US remaining Capacity.
The other HUGE factor is that Asian Refining Capacity is not even near dangerous capacity levels and we can import products/gasoline from Asia as needed.
eia.doe.gov
We are not even remotely close to gasoline lines !
Do we need to build more Refinery's in America ?
- yes; we do. But, we are not even remotely near refining capacity, or inventory levels supporting present prices...not even remotely close...
We are at lower refining capacity levels than 2003 and 1998 for example !
Whenever you hear this unadulturated Bull$h!^ about Refining Capacity being a problem - this is 110% uninformed and/or blatant - SPECULATOR HYPE !
- nothing more, nothing less.
This is THE reason why Lee Raymond and every other Big Oil CEO says - there is no problem with getting all the Crude Oil they need for their refinery's and the present price of Oil is NOT - supported by present supply : demand and Inventory Levels.
Another MYTH is that the additional Saudi output of Heavy Crude is not going affect prices - because we can't, or won't refine it.
All BS - this is WRONG.
Price spreads between Light Sweet & Heavy Sour have reached levels advantageous for Refiners to both refine Heavy Sour and to add Heavy Sour capacity.
There is significant Refinery Capacity remaining in Asia... we can import what we need from Asia should "actual" demand levels, or inventory levels require and should we ever reach a real Refining Capacity "shock" in America.
Asia does not have the Environmental constraints that we have in America to building new Refinery's, or adding Capacity... and they are adding capacity now.
Actual Refinery Capacity during the 1st run of Crude Oil thru $50+ in 2004 was actually at lower Refinery Capacity levels than we had in 2003 and 1998 - where we had much lower Crude Oil and Gasoline Prices !!!!!!!!
- how could that be - given US Inventories are above 5 year averages as well ?!?!?!?!?!?!?
- and again; we can import gasoline refined abroad as needed.
The facts are:
- There is not Refining Capacity Shock in America, or Globally.
- There is no Inventory/Supply shock in America, or anywhere else in the World.
- US Inventory levels and Refining Capacity levels do not reflect the fundametnal sustainability of $50+ Crude, yet alone any fundamentally driven reason for having reached $50 in the first place...
- We still have "SIGNIFICANT" Refining OUTPUT remaining in the US and Globally.
Crude Prices have been driven to present levels by 3 main factors and the emerging 4th Factor - that you haven't seen spoken about in the mainstream media...but, will be THE main catalyst for Crude Prices going forward:
1. SPECULATION - driven primarially by expectations related to the falling USD, Geopolitical Risk and the China Play story.
2. By China hoarding Oil (building it's own SPR)far in excess of it's actual use and Industrial demand.
3. By the USA restocking it's Strategic Petroleum Reserves.
4. By the single most important factor going forward ...and that is that - "the PRICE" of Oil is now being used as:
- A Weapon of Mass Economic Destruction.
...and that Oil has not been, is not...and in the near future; will not....trade on free market driven Supply : Demand , Refining Capacity or Inventory Fundamentals.
America brought down the former Soviet Union via escalating the Cold War and pushing the Soviets to unsustainable levels of Spending on their Industrial/Military Denfense Complex that collapsed their system.
America now reigns as the sole Global SuperPower and there is only 1 threat on the Horizon to that status:
- CHINA
I will also add; that few, if any of the PermaBulls here understand the dynamics of the China play -how much Oil Demand within China is "strategic" and temporary & unsustainable; or how the Price of Oil and Natural Resources are now being used as Weapons of Mass Economic Destruction in the very real "War" that is ongoing between the lone Global SuperPower and the lone challenger on the Horizon to that status...
The Good News:
- is that PermaBulls don't need to know why Oil is going up....they don't need to be right on the "why" - they only need to be in the right place at the right time...albeit; for all the wrong reasons.
The Bad News:
- is that PermaBulls won't understand the "why" or the "when" of it all - when it all ends and it will most certainly come to an end...and it will be ugly....just as when the last "Asian Contagian" collapsed Oil to unimaginable low's not so many years ago...just as Lee Raymond & many others have warned us of once again.
tic` toc'
Ichan is no fool... he can't wait to turn KMG into an Income Trust...as he should...he knows the end game ~ |
