Page 2 of
3 Crude: Barrels of fun to crack you
up By Julian Delasantellis
the world's various far-flung
crises, if the crack spread is rising, the
products, especially gasoline, are leading crude
oil up, not the other way around.
So
what's the crack spread doing during the current
Iran/UK crisis? Just like It Happens Every
Spring, it's rising, but this year it's rising
earlier, faster and higher than previously. From
being under 10 for most of the previous six
months, it has surged to almost 25 recently. It
pulled back a bit early last week, but by
Friday, March 30, it was on
the move again, closing at 18.37, up 12% on the
day.
Every time the price of crude rises
and the Western popular media accuse OPEC nations
of price gouging, their defense is that it's not
them, it's the Western oil companies. The rising
crack spread essentially proves their point.
There's no real shortage of crude oil; actually,
the world is awash in it. Spare refining capacity,
that's another story.
Fox News is dealing
with consumer concern over rising US energy prices
by working overtime to make sure that their
newsreaders speak the name "Al Gore", the Oscar
winner for An Inconvenient Truth and former
US vice-president and Democratic party candidate
for president in 2000, as the audio accompanying
video of US gas stations displaying $3 a gallon or
more prices for gasoline on their signboards. Much
like the conditioned-reflex therapy attempted on
Alex in A Clockwork Orange, in which he was
administered a nausea-inducing and
respiration-suppressing drug while watching
violent films, thus making him associate the two,
the intention here is apparently to make viewers
think of, and associate Gore with, the current
financial unpleasantness of filling their cars
with fuel.
This is an ever-more popular
theme in conservative efforts to shift
responsibility for the fact that gas prices have
reached stratospheric heights under the Bush
administration. Supposedly, Gore bears total
responsibility for current high prices solely from
his previous advocacy of a 50 cent a gallon tax on
US gasoline sales to fight global warming. A
potential 50 cent rise is, of course, meant to
terrify the viewers away from the twin evils of
either changing the channel or voting Democratic,
but, in reality, it's only just about what the
private competitive markets have given US
consumers since January.
A more
substantive observation than the above is the
charge that the political left's allies in the
environmental movement, along with the wholly
bipartisan American phenomenon of NIMBYism ( not
in my backyard) have stifled any new construction
of oil refineries within the United States.
Well, something has. There has not been a
new refinery opened in the US in 31 years; during
that time, the actual number of refineries
operating in the US has dropped from 301 in 1981
to 149 in 2003. (This is less dramatic than it
seems; US refiners have consolidated many of
their, older, smaller capacity refineries into
fewer large-capacity refineries.) If more refinery
construction had been allowed, it is argued, the
refinery capacity crunch implied by rising crack
spreads and rising pump prices would never have
occurred.
This argument might have more
credence but for the fact that oil refining is a
process and business that occurs all over the
world, and there is no law that states that a
gallon of petroleum products consumed in the
United States has to be refined in the United
States. (Free market conservatives, who are always
defending low wages paid to labor by talking about
the global market for labor, are not as quick to
apply that same principle to the global market for
petroleum products.) According to the Oil and Gas
Journal, 96 of the world's countries have
operating oil refineries within their borders; of
the world's 10 largest-capacity oil refineries,
only two, ExxonMobil's refineries in Baytown,
Texas, and Baton Rouge, Louisiana, are in the US.
(The world's largest-capacity oil refinery, the
Paraguana Refining Complex in Venezuela, ships
almost the entirety of its product of 940,000
barrels a day to the US east coast.)
If
environmental Luddites are preventing creation of
new US refinery capacity, surely that can't be
true in the 95 other countries where refineries
are currently sited, not to mention the 100 or so
other countries where they are not. Many of these
countries are in the Third World; they are
desperately poor, and local environmental
movements, if they exist at all, are at most
nascent. Surely, if the oil companies knocked on
their door asking to build a new refinery or
expand a currently sited one, they would not say
no.
But, like Sherlock Holmes' dog that
didn't bark, the story here is the knocks on the
doors that don't come, the world refinery capacity
that isn't being built.
According to the
Energy Information Administration of the US
Department of Energy, total world refinery
capacity has only increased 1.5% from 2000 to
2005, from 81.53 to 82.8 million barrels a day
(mb/d).
This is in the face of surging
world oil demand, particularly from the newly
industrializing nations of China and India, not to
mention the current American rite of passage
practice of making sure that, just like mom and
dad have, every American teenager has a brand-new
15 miles per gallon sports utility vehicle to
drive the six blocks to the massive parking lot
outside their secondary school.
According
to the International Energy Agency, from 2003 to
2006, world oil demand increased by an average of
2.1% a year. Demand in 2005 was 83.7 millions of
barrels per day (mb/d), with refinery capacity
that year at 82.8 mb/d, it means that the world is
short almost 1 million barrels a day of fuel. Take
out refinery capacity taken out for repairs,
maintenance, accidents and the unforeseen (in the
immediate aftermath of Hurricane Katrina, nine US
Gulf Coast refineries, representing 12% of US
production, were shut; for many the shutdowns
lasted many months) and you get the picture of
markets for petroleum products that have much
stronger tendencies to rise than to fall.
During the summer of 2000, California
electricity supply crisis, when large parts of the
state were being subjected to daily electricity
blackouts, the late Ken Lay, at that time chief
executive officer of the Enron Corporation, a
major player in the California wholesale
electricity market, mocked David Freeman, chairman
of the California Power Authority, by, according
to Freeman, stating: "It doesn't matter what you
crazy people in
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
