Analyst: Venezuelan strike should help US independent refiners

By OGJ editors

HOUSTON, Dec. 27 -- Reduced US refined product imports from Venezuela and a subsequent tightening of product inventories should help boost US refining margins going into the first quarter, Prudential Securities Inc. said.

Venezuela's general labor strike has curtailed refinery runs and oil shipments from that country.

Reduced refined product supply from Venezuela, combined with an anticipated heavy spring turnaround schedule for US refineries, could keep US inventories near 5-year lows for a few months, Prudential analyst Andrew F. Rosenfeld said in a Dec. 26 research note.

Improving demand coupled with low inventories should trigger higher US refining margins and better earnings for US independent refiners in 2003, he said.

"While we have no reliable method to determine when the oil workers strike in Venezuela will end, we have developed a model looking at the potential effects on US refined product inventories," Rosenfeld said.

"We have modeled the strike ending by early January with production and exports being fully restored by early February," he said.

The following assumptions were used to estimate refined product inventory levels:
--Refinery production is at the maximum weekly level adjusted downwards for planned maintenance and short-term rate reductions due to Venezuelan crude import shortfalls.
--Refined product imports are at the maximum weekly level adjusted downward by Venezuela's share of 120,000 b/d, which is 8% of 2002's imports through September.
--Refined product demand is at the maximum weekly level plus 1.7% growth, per our 2003 demand growth forecast.

Venezuela also supplies the Caribbean and Central America regions, as well as the US, with refined products. Rosenfeld said industry sources told him that several US refiners had exported gasoline from the Gulf Coast and West Coast to meet this demand.

Prudential did not calculate the US exports into its model, he said. "We believe that if these exports were to continue, our inventory outlook could prove to be too conservative, and actual inventory levels could be lower than we currently project."

"If the strike is prolonged, (US) inventories could move towards their 5-year lows unless refining margins increase adequately to attract incremental production from other regions of the world or (US) refinery maintenance turnarounds are delayed," Rosenfeld said.

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