High Oil Prices

[Baack]

Originally Posted by pvwowk

I have a hard time believing the high prices today are caused by strained refining capacity... there are two main reasons.

1. Oil refineries are running on the margin (at $125/bbl it costs $2.97/gallon of crude) . If there was a shortage of refineries, refineries would make a huge profit (they did a few years ago).

2. It's not extremely difficult to build a refinery elsewhere and shipping the products into the states. It only adds a few cents on every gallon.

Building more refineries won't solve the price problem. In fact, it will probably make it worse because companies will be spending their profits on refineries instead of exploration or drilling.

There is no reason to explore if they cant tap what they find

[Ronnocomot]

Originally Posted by pvwowk

I have a hard time believing the high prices today are caused by strained refining capacity... there are two main reasons.

1. Oil refineries are running on the margin (at $125/bbl it costs $2.97/gallon of crude) . If there was a shortage of refineries, refineries would make a huge profit (they did a few years ago).

2. It's not extremely difficult to build a refinery elsewhere and shipping the products into the states. It only adds a few cents on every gallon.

Building more refineries won't solve the price problem. In fact, it will probably make it worse because companies will be spending their profits on refineries instead of exploration or drilling.

Refineries are running at about 89% capacity.

Here is the main problem with gasoline.

Many states require specific formulations of gasoline — there are currently 18 separate gasoline formulas for different regions of the country-and it is often difficult to import gasoline supplies from one region to another.

[pvwowk]

I still don't understand how "limited" refining capacity could cause high crude oil prices when there are no gasoline shortages...

[Ronnocomot]

What is the Impact of Refining Constraints?

A number of key pricing relationships exist in petroleum product markets. Prices of petroleum products typically move together over time and all of these prices respond to movements in crude oil spot prices, though often with a lag. As refinery utilization increases, operating costs tend to rise and stronger product demand allows refiners to pass-on a greater proportion of these costs.
Refinery bottlenecks remain a serious concern. While global refinery capacity utilization is presently below 90 percent, specialized refinery capacity is limited for particular types of oil (heavy) and in specific regions, requiring regional demand-supply imbalances to be resolved through imports of petroleum products. Although different product specifications for different regions hamper trade in products, the United States for example, imported almost 10 percent of its gasoline requirements in 2004. Given crude prices are determined in a global market, however, localized refining capacity constraints by themselves are unlikely to increase crude oil prices.




Refining capacity constraints, while contributing to perceptions of tight market conditions, mostly affect product rather than crude oil prices. In general, crude oil prices lead product prices, reflecting the global nature of crude oil price determination and OPEC's role as the marginal supplier of crude oil. Refinery bottlenecks have recently contributed to higher spread between light and heavy crude oil prices.

[pathfinder]

So will any of the push for bio fuels actually work to lower price? Meaning if OPEC see's a viable alt. to oil will they likely open the tap so to speak, flooding the market and lowering the price. Thus making the profitability of alt. fuels too low compared to the cost of oil. I should clarify that I am refering mostly to bio-diesel, NOT ethanol.

[pvwowk]

Originally Posted by Ronnocomot

Refining capacity constraints, while contributing to perceptions of tight market conditions, mostly affect product rather than crude oil prices. In general, crude oil prices lead product prices, reflecting the global nature of crude oil price determination and OPEC's role as the marginal supplier of crude oil. Refinery bottlenecks have recently contributed to higher spread between light and heavy crude oil prices.

This is closer. I can't see refining bottlenecks causing a 1000% increase in crude oil prices over the last 8 years.

On a side note, bps new oil sand facility will produce about 200,000 bbl/day in 2012 and cost $3 billion +.

It is likely this will help flatten Canada/USA's production curve but will not help prices. (USA's production will likely drop from currently 5 million bbl/day to 4.6-4.7 million bbl/day, and if they decide to drill ANWR, 4.8-4.9 million bbl/day)

Basically, oil sands are too little too late.

Also, there have been no profitable oil shale plants built. Nobody is even investing in any oil shale's (apart from scientific research). When somebody does decide to drop their money on a oil shale plant, it will be 5-10 years before it produces it's first drop of oil.

[pvwowk]

Originally Posted by pathfinder

So will any of the push for bio fuels actually work to lower price? Meaning if OPEC see's a viable alt. to oil will they likely open the tap so to speak, flooding the market and lowering the price. Thus making the profitability of alt. fuels too low compared to the cost of oil. I should clarify that I am refering mostly to bio-diesel, NOT ethanol.

The answer is no.

Ethanol is political. That's what Bob Dole told me in 1989. He called me up and said, "Quit talking down ethanol. You need to understand something: There are 21 farm states, and that's 42 senators. Those senators want ethanol." He said, "Are you getting the picture?" And I said, "Yeah, it's coming through pretty clear." [Dole confirms that Pickens's account is "probably accurate."

From this guy...
[LINK POSTED BY MEMBER] Only Members Can View This Truck Forum Link.

Biodiesel is the same story as ethanol.

[Ronnocomot]

Originally Posted by pathfinder

So will any of the push for bio fuels actually work to lower price? Meaning if OPEC see's a viable alt. to oil will they likely open the tap so to speak, flooding the market and lowering the price. Thus making the profitability of alt. fuels too low compared to the cost of oil. I should clarify that I am refering mostly to bio-diesel, NOT ethanol.

If every kernel of corn grown in the U.S. were diverted to making ethanol or any variation thereof, it would cover about 12% of our annual usage.

[pathfinder]

I know ethanol is not the answer! When Iowa's ethanol plants all come on line I heard(read) they will require the entire corn crop of the state per year. Was more curios about the biodiesel i'm learning about. Especially the algae stuff.

[gearjammer-2000]

Originally Posted by pathfinder

I know ethanol is not the answer! When Iowa's ethanol plants all come on line I heard(read) they will require the entire corn crop of the state per year. Was more curios about the biodiesel I'm learning about. Especially the algae stuff.

You are right I have been doing a lot of research on the alternatives and the only viable GREEN alternatives that look viable is algae for diesel there is also research going on to make the residue from the algae conversion into alcohol it also can be pelletized into animal feed. The more I read on Algae the more excited I get I am even thinking about investing in one company [stock ticker OOIL].

Alcohol isn't going to be a viable alternative until they perfect the process of making it from cellulose, and even then its kinda iffy it it is going to be the magic bullet everyone is hoping for, but at present making it from grain is doing much more harm than good.

There are viable alternatives,
Obviously more drilling in our own back yard, building our own refineries and not relying on foreign countries for either crude or refined products would go a long way in regaining control of our mobile energy needs.

We also need to start construction on Nuclear power plants and soon

There is also clean coal technology that needs to be utilized, it can produce electricity and high grade crude can be made from it, and be have a proven 250 year reserve of coal in this country.

What needs to be done the quickest is to cut back the powers of the EPA and super glue the lips of the environmental nuts shut that have forced all of us into this untenable situation!!