And HiD is saying - as I read him - that while there may be a shortage of sweet crudes (which can be refined profitably), there is no general shortage of crudes.
So why is the crude price this high? Because producers AND intermediaries have an interest in it being "bid up", that's why.
Is it consumers "bidding it up"? You tell me.
If it were the case that the major oil Corporations which produce and refine oil were service providers (getting a proportional fee or service charge) - rather than elements in a supply chain of transactions - then the market would look rather different.
Indeed, I think that the market is trending in the direction of service provision anyway as producers become more and more reluctant to sell "Equity" in their production.
Moreover, the short termism inherent in the financing system has starved the market of necessary investment - particularly in refining, which is where the bottlenecks are.
"Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Even now there are dozens of projects on the books with US refiners struggling to make a profit. Are they obligated to build as much capacity as is required to keep margins at bare minimum so you can have cheap fuel? ho ho ho, pull the other one.
The short termism is that of the financial sector and the levels of returns demanded by the "private" sector for investment.
Refineries, pipelines, storage and other similar infrastructure are essentially utilities, as are airlines in many areas.
If push comes to shove and they all go bust, do you see governments not stepping in? "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
That's a problem with the thinking of some on the left. They believe refiners should just be there to cover their needs without recognizing there's a two way street implicit in that bargain. You can't have cheap and steady.
The price is "offered" by the distributors of refined products.
The distributors buy from refiners (unless they are vertically integrated, but still, if the market price is high enough you may decide to sell your refined products wholesale rather than distribute them yourself). So you can say that there is bidding amond distributors to buy from the refiners.
The refiners bid among themselves for crude. We're told the refiners' high bid for Arab Heavy is lower than Saudi Arabia's asking price. This means that the refiners don't feel they can raise their asking price for refined products, which means that there isn't an unreasonable profit margin being made between refiners and distributors.
So, where are the profit margins? It appears the profit margins are mostly going to the producers.
OPEC can no longer push prices downward by increasing production, but they can push prices higher by withwolding it. They appear to be doing just that with Arab Heavy: asking for a price the refiners won't bear because the market for refined products also won't bear the resulting retail price.
Now, unlike in the 1970's when OPEC's stated reason to withhold production was political (the Yom Kippur war), in this instance the reason is economic. And who can fault them? If they know their balck gold is running out they should husband it, not sell it cheap to Whitey. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
This means that the refiners don't feel they can raise their asking price for refined products, which means that there isn't an unreasonable profit margin being made between refiners and distributors.
Check the development of the shares of the two big refiners Tesoro and Valero. Peak oil is not an energy crisis. It is a liquid fuel crisis.
NYMEX heat July 3.8, Dec 3.95/gallon NYMEX gas July 3.45 Dec 3.3/gallon WTI 136.8 137.1/bbl
Heat cracks are $23/bbl prompt and $29 for winter. That's plenty! gas is lower $8/ $1.5
That's the problem for US refiners designed for max mogas like Valero and Tesoro.
The people at the Preem/Scanraff in Lysekil invested huge $$$ in equipment to turn Russian heavy/sour into sulfur-free diesel. They are swimming in money now. Peak oil is not an energy crisis. It is a liquid fuel crisis.
How much would that cost, how long would it take to build, and what would be its lifetime?
Suppose, also, that you believe in the current price climate a lot of the demand for liquid fuels is going to shift to electricity from other sources on a scale of 5 to 10 years.
It might be that it doesn't make sense to invest in a heavy sour refinery because by the time you'd expect to be recouping your investment, the demand for the refined product just isn't there. We may not be in that situation yet, but it's a scenario I'd like to see developed, because it might mean that the underinvestment in heavy sour refining capacity in the 1980's/90's might be an irreversible, frozen historical accident. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
US refiners still remember a decade+ of pain from the wild eyed expansions of the late 70's/early 80s. Yet there are still billions of dollars of projects in the works. Conoco even has ads on TV bragging about doubling the size of their already large Lake Charles refinery.
I'd guess a modern 250 MBD refinery is at least $5 billion bucks. Would take you 3-5 years from getting permits to go to have it up and running.
while there may be a shortage of sweet crudes (which can be refined profitably), there is no general shortage of crudes. So why is the crude price this high? Because producers AND intermediaries have an interest in it being "bid up", that's why.
while there may be a shortage of sweet crudes (which can be refined profitably), there is no general shortage of crudes.
It might be profitable to refine it if you were willing to pay even more for your heating oil... When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
