I made a few assumptions:
a. Production will start out at its current level, which is about 8.5 mbpd, and increase to 9.6 mbpd by June as the refineries get cranked up.
b. consumption will start out at its current level, which is about 9.5 mbpd, and increase to 11 mbpd right after memorial day, at which point it will be about level throughout the summer.
c. Imports will be level at 1.1 mbpd, and be level, unless otherwise assumed.
We have a starting inventory of 221.6 million barrels, and using the assumed projected weekly consumption, imports, and productioni, per the above, we can calculate the inventory balance every week, and predict whether or not we will run into inventory shortage problems by the end of summer, which is the first week in September.
a. Base scenario, assuming no funny business on anything:
These two little graphs will predict what will happen. As you can see, if things keep going on like they are now, the inventory will be drawn down some, but we will have plenty of supply until after labor day no problemo.
b. In this scenario, a hurricane hits, which causes a major refinery outage, which reduces the production of unleaded gas from 9.6 to 7 mpbd. The hurricane hits on august 1, and the effects last for five weeks. This is a mere "Ivan" scenario, and not as severe as the Rita scenario from last year.
Here are the two graphs:
As you can see, the going definitely gets tough in the last couple of weeks, but as long as imports stay where they were, there is still enough supply to keep from running out of inventory barely.
c. We make somebody in the world mad, and imports stop. Note that this scenario is really unlikely, because most of our finished product imports come from Canada and Mexico, so this is just hypothetical (probably). There is no hurricane.
Note that in this scenario, inventory will run out in August, even if there are no hurricanes.
d. For fun, kind of a hybrid scenario to figure out where the ragged edge is: The hurricane hits on August 1, and knocks production down to 5 mbpd for 5 weeks. Imports are reduced to 1.0 mbpd.
In this scenario, at only 1.0 mpbd imports, the supply will not survive another Rita/Katrina episode.
So, what are we to make of all of this:
a. The threat of a cutoff in imports is potentially more serious than another hurricane. At the current rates of consumption, we will be capable of making it through another hurricane, but we will not be able to make it through summer without imports. I guess it stands to reason that once consumption gets above 9.6 mbpd, we no longer have enough domestic refinery capacity to keep up with demand, and there will be an inventory draw down unless there are imports. Note that the consumption data is million barrels per day, and you have to multiply by 7 to get the inventory draw for a given week.
b. The second hurricane example tells us that the US must import greater than about 1 mbpd as "insurance" against a big potential hurricane. If we import 1.3 mpbd, for example, the drawdown is much less serious. If we import less than that, there is no buffer for error. We would make it through the summer if there were no hurricanes, but would get into shortages if there were any snafu with the refineries.
So, to put it another way, you petrol junkies out there, you need at least 1 mbpd of the juice from elsewhere in order to keep from going through withdrawal
c. This has a chance to grow into a situation like we have with natural gas, where we would be really dependent on our ability to make and store gasoline during the winter, when usage is low, in order to keep the fleet running.
d. There is some question as to how flexible the foreigners can be in terms of allowing us to import fuel. Last year, right after the hurricanes and continuing into fall, the europeans sold us some gasoline so we could continue to import BMW's. This was convenient for them because their inventory situation at the time was favorable. I will have to check the European inventory situation and see what kind of shape they are in for the summer.
e. Of course, if there is some other catastrophe that keeps consumption from maximizing, there will be more margin for error, but we should hope that does not happen.
Anyway, I was really surprised at this dependency on imported finished goods, in addition to the crude stuff. Other than that, suffice it to say that unless something really screwed up happens, we will probably make it through the summer okay for unleaded gas, as long as imports stay above 1 mbpd.
