by DantesPeak » Thu 10 May 2007, 22:59:19
Yes, PO is the primary problem here – more specifically light sweet crude which peaked two years ago. Also shortly afterwards, almost two years ago, US gasoline production plus imports have started coming in less than total US gasoline demand. If not for an emergency transfer of gasoline inventories from a number of OECD countries after Hurricane Katrina, we would have had gasoline shortages already.
Essentially the 1,000,000,000 barrels of various grades of oil held in US commercial and SPR inventories will not prevent a shortage of gasoline from occurring.
Reorganizing the US gasoline and supply and distribution network to adjust to diminishing quantities of light sweet crude is not something the refineries will voluntarily want to pay for. The US government, with no strategic gasoline reserves or operating refineries, also can not step in to fill this void. Apparently the technology for lower quality crude is more complex, costly, and subject to more frequent breakdowns - which has contributed to lower refinery utilization.
No doubt the blame for failing to rapidly adjust to changing oil markets partly lies with the oil companies – as well as the government (for operating the SPR like some price controller) and even the American public (for not demanding higher mileage vehicles and standards). But more importantly, private industry does not have enough financial incentive to secure additional supplies and send them to the right refineries at the right time, at least not until operating profits are substantially increased. As the source, composition, and reliability of oil supplies continuously changes for the worse, refineries will demand a higher return on investment for risks taken.
However the desired rate of financial return for refineries can not be realized when the US Congress and the American public generally think that high gasoline prices are mostly due to price gouging. Therefore as light sweet crude continues its production down slope, refinery output will not adjust fast enough to the complex changing realities of PO, and gasoline output will further diminish.
It's already over, now it's just a matter of adjusting.