OPEC Exports Head East as Asian Supplies are Depleted

DantesPeak

There has much debate about why oil prices are so high. Where's the evidence of lower supplies? Why are US crude inventories rising if oil is in short supply? Shouldn't we blame high prices on speculators and evil members of OPEC?

To refresh everyone's memory, in late 2007 the US begged for more oil supplies from the Mideast - and got them. The US was given a price advantage over east Asia, more specifically Saudi Arabia sold oil to the US for a few dollars less per barrel than to other countries. By about the beginning of February that price advantage was removed, while oil supplies in Asia fell. Higher supplies in the US made it appear that high oil prices were caused by speculators.

Now the East has to build up its low oil supplies fast. South Korea has already halted product exports. China has recently experienced shortages of oil products throughout the country.

If OPEC follows through with shipping more oil to Asia, and if US refiners pick up prodcution for the summer driving season, we may no longer see US oil inventories at 'comfortable' levels.

FireJack · Heavy Crude Joined: Mar 16, 2005 Posts: 449

Looks like it won't be long till we really start seeing troubles caused by supply shortages. People keep saying it doesn't matter if the cost goes up we can afford it but the real problem has always been supply and its what I've been dreading. Suddenly things like windmills and solar panels are going to become too expensive to build and impractical in a oil depleted society. I just hope I have time to learn how to make a survival garden because winters without snowplows will be a bitch here.

Iaato

PeakingAroundtheCorner

Drip...

Drip...

Drip...

frankthetank

This would be a good time to send more troops to Saudi Arabia, Iraq... Probably double the numbers over there. Add more aircraft too. What do they think they are doing with our oil?

Gotta go drive to my mailbox now... Smile

_________________
"Oil is going up because we use too much oil, and the capacity to replace reserves is dwindling"
-President Bush 11/07/07

DantesPeak

Saudi Arabia, thought to be taking advantage of strong Asian demand, has raise prices for Asian customers as compared to US customers for the month of May.

DantesPeak

Another report than any increased OPEC output expected in latter April to go to Asia.

DantesPeak

This article appears to confirm that any OPEC prodcution increase is not coming from ME oil exporters that usually ship to the US:

pup55 · Expert Joined: May 26, 2004 Posts: 3597

Here are some graphs:

This is a graph of the 2007 refinery inputs starting in April. By this time last year, we were already consuming over 15 mbpd. Last week, we were still at the february-like level of about 14.4 mbpd.

So I added a little "model" of the refinery inputs that would happen based on the refineries increasing at about the same trajectory as they did last year, starting at the current level of usage. I just "time adjusted" the actual values from last year starting in February.

Based on this, here are three scenarios:

The first one is the crude oil inventory with imports at 9500 tbpd (higher than the current four week average) and domestic production at about 5080 tbpd, using the conservative scale-up model. You can see what happens. Even with the conservative production conditions, we are down at 275 million barrels in mid-July.

I did one with a "reduced import" scenario, 9300 tbpd, with the same refinery conditions, and it is the pink line.

The yellow one is the "robust refinery" model, which is, imports of 9500 tbpd, and refinery inputs roughly what they were last year.

But the offshoot of all of this is as follows: None of these situations are good. Even at the optimistic reduced refinery rates, and 9500 tbpd imports, the inventory gets to down around 275 million barrels by the middle of summer.

If the refineries were running at anywhere near a normal level, the drawdown would be even faster, and we would see 275 mbbl, thought to be pretty close to the MOL, by the end of May.

Last year, the average crude oil imports for this time period was 10.3 million barrels.

Some combination of two things could happen to keep us out of trouble: We could import finished products from Europe, which is a good alternative since they reportedly have plenty of unleaded and/or blending components, or, OPEC can open the spigot and point the tankers to us, during an election year, rather than China, during the Olympics.

Otherwise, there will be a substantial inventory drawdown between now and the end of summer.

pup55 · Expert Joined: May 26, 2004 Posts: 3597

Here is one more graph.

At the current moment, with crude oil imports what they are, and refinery inputs what they are, we are in a rough balance for crude oil.

One plausible scenario is that the refineries just do not gear up, they maintain constant production to maintain a stable crude oil inventory.

So the question is, how much unleaded imports would we need to maintain supplies at their current levels, given some estimation of forward demand this summer.

Using my little demand algorithm that enables me to whip up on the analysts just about every week in predicting the unleaded inventory, we can come pretty close to estmating the demand, The current average unleaded production is about 8.7 mbpd, so pretty easy to come up with an estimate of the weekly unleaded deficit, which is the above graph.

The average throughout this period is 1.363 mbpd.

Here is a little inventory model of what will happen if we import unleaded at 1.0 mbpd. Note that this is higher than the current level of imports, which is about .90 mbpd.

We can all see that this is not going to work.

So we should watch this and see what happens. If what we suspect is right, we will start importing up to 1.3 mbpd unleaded starting in the next few weeks in order to keep the inventory of crude oil and unleaded both stable, with a little cushion.

If, instead, refinery utilization picks up, the crude oil will be drawn down. If the refinery utilization stays the same, Sam will be on the phone to europe looking for some unleaded.

frankthetank

Hmmm... Cut consumption or boost production? Doing neither. This should work out just fine. Can't wait to sit in my first gas line. Hopefully we get debit cards or gasoline vouchers. At least we have $5 foot longs.
_________________
"Oil is going up because we use too much oil, and the capacity to replace reserves is dwindling"
-President Bush 11/07/07