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31 comments on Saudi Arabia from the Bottom Up

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jkissing on November 22, 2005 - 4:52pm Permalink | Subthread | Parent | Comments top
He probably thinks the "turbulent world" (p.25) case is closest to reality. One problem is that,while he tries to modify oil output based on events, he does not do this for refinery capacity, which should at least be down on account of K/R.  

Of course actual demand and output may be wrong, but what is most striking is that crude output is nearly always above refinery capacity. Crude that can't be refined has no value (well, not today), so if this case is valid product prices should rise (refinery capacity remains lower than the 1% demand assumption until mid 2009) while crude should fall. Mid-2009 is also when refinery capacity exceeds crude output, so crude prices would be expected to resume climbing at this point.

THis helps explain Saudi complaints regarding the west's failure to expand refinery capacity in line with their own demand growth, and also explains their own plans to add refineries.  And, it might explain oil companyies' reluctance to expand theirs; refineries' profits are growing sharply while the major's crude output is beginning to decline. It is OPEC that hurts - they might have to cut output to maintain prices. OTOH, peak is delayed while high product prices encourage thrift.

It would be great if future peak models include refinery capacity.

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Rembrandt on November 22, 2005 - 8:35pm Permalink | Subthread | Parent | Comments top
Interesting suggestion to model refinery capacity based on events. Didn't think of that, another point for a revised version. Anyhow the question is, do we truly not have enough refinery capacity? Or is this just merely a question of having not enough capacity for sour grades of oil? The jury is still out on this one. And are these missing barrels the so called "extra supply that nobody wants to have" at the moment according to OPEC?
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peakearl on November 22, 2005 - 8:47pm Permalink | Subthread | Parent | Comments top
How can crude output be consistently about refinery capacity without interminable builds of reserves? Where would we be putting all that oil. I know stocks are up, but not that much, and SPR is down from what is was. If fact, as percentage on daily demand stocks are no greaterthan they've ever been and will be going down with the cold weather. I can't buy your premise without some data.
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peakearl on November 22, 2005 - 8:48pm Permalink | Subthread | Parent | Comments top
I meant above refinery capacity, not "about" refinery capacity. Sorry.
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jkissing on November 22, 2005 - 11:04pm Permalink | Subthread | Parent | Comments top
Actually, US commercial stocks are 11% (34mb) higher yoy, and the SPR is 23mb higher yoy even though around 14mb (2%) was loaned to oil companies after K/R.

Prices are down supposedly on account of warm weather, but there may already be more crude in US storage than refineries want, particularly now with futures prices lower than spot. Refineries are flat out, and would be regardless of weather.  There could easily be more crude produced than can be stored this winter just as many freeze on account of too little heating oil.

The market links crude with product, so crude rises when product rises, which would be ok if refineries could handle as much crude as is now being produced. Note that OPEC had excess capacity, so could handle excess demand from China and others, but the world does not have sufficient refineries to process the excess demand. Saudi is right, complaining that the problem is too little refineries rather than too little crude.  

The "turbulent" chart (which may or may not have the correct assumptions, but there is probably more certainty regarding future refinery capacity than onset of peak oil) shows 2009 to be the critical year, with refineries catching up with demand just as lack of crude takes over the bottleneck role. This chart strongly predicts higher product prices and lower crude prices to mid-2009, meaning the downstream end will do better than the upstream end.

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peakearl on November 23, 2005 - 2:46am Permalink | Subthread | Parent | Comments top
I am aware of the storage numbers and I do believe that refinery capacity has recently been below oil supply, especially since the hurricanes. Note however that the current figure for SPR is 684, about 16 million barreIs below max before Katrina, about half of the yoy commercial stock build. I also agree that crude production is more than refinery capacity now, especially for heavy/sour crude. In the past, however, we have seen large drawdowns in crude stocks, to near dangerous levels as refineries supplied products to the market. I think the difference is you referred to oil produced exceeding refinery capacity - which has probably been true recently - rather than production capacity exceeding refinery capacity. The excess capacity is not much now, however, generally estimated at 1.5 million barrels/day, and may not be enough to make a difference soon.
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31 comments on Saudi Arabia from the Bottom Up

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