HURRICANES SHOW OIL MARKET ISN'T JUST ABOUT CRUDE

Bob Tippee

As the second massive hurricane in less than a month plows across producing areas of the Gulf of Mexico and pulls within hours of major US refining centers, the need to adjust thinking about the oil market deserves notice.

That market isn't just about crude oil any more.

It never really was, of course. But crude oil got all the attention from the news media and politicians.

There are sound reasons for this. Crude costs account for the biggest nontax share of the delivered price of oil products. And the price of crude falls under the strong influence of production decisions by the Organization of Petroleum Exporting Countries, the political maneuverings of which provide an intriguing focal point for media attention.

That demand for crude has expanded enough to test production limits has been an important part the market story for at least a couple of years. It's an important reason crude prices have risen.

Less noticed until recently is that the same story applies to worldwide refining capacity. Demand was testing capacity limits even before Hurricane Katrina slammed refining centers in Louisiana and Mississippi and idled Midwest refineries by shutting down an arterial crude oil pipeline.

Now, plenty of crude oil is available. The challenges of the moment are crude quality and refinery distillation and processing capacities.

Less plentiful than crude in general is the light, sweet crude refiners need to meet growing demand for light, sweet products. Most of the extra crude entering the market is heavy and sour, much of which is moving into storage because refiners don't need or, in many cases, can't process it.

Operable refineries, meanwhile, are working at nearly capacity rates in the US and much of the world. A convenient imbalance of the moment is the chronic gasoline surplus developing in Europe, where diesel's market domination is growing.

When Hurricane Katrina hit, a lot of European gasoline began moving westward, supplemented by the International Energy Agency-European Union release of 683,000 b/d of gasoline, distillate, and fuel oil from strategic storage. The quick injection of product into the market was more important to the emergency response than the much greater volumes of crude that became available from strategic stock draws and OPEC's agreement to tap spare production capacity if needed.

To repeat, the oil market isn't just about crude. It isn't just about how much oil the world can provide in relation to how much it needs. It's about what kind of oil the world needs in relation to what kind refiners can produce.

And an important concentration of that capacity on the Texas and Louisiana Gulf Coast, is, as this is written, about to get clobbered again.

(Online Sept. 23, 2005; author's e-mail: bobt@ogjonline.com)

Related Articles

MOL absorbs Eni’s Romanian retail assets

02/02/2015

MOL Group, Budapest, has completed the acquisition of Eni Romania, including 42 service stations to be rebranded under the MOL name.

CNOOC subsidiary inks deal for grassroots refinery

02/02/2015 Hebei Zhongjie Petrochemical Group Co. Ltd., a subsidiary of China National Offshore Oil Corp. (CNOOC), has entered into a $700 million agreement w...

Sasol lets contract for Louisiana petrochemicals plant

02/02/2015 South Africa’s Sasol Ltd. has let a contract to GE Oil & Gas, Florence, Italy, to provide the main-compression trains required for a low-densit...

EnLink agrees to purchase Coronado Midstream for $600 million

02/02/2015 EnLink Midstream has agreed to acquire Coronado Midstream Holdings LLC, which owns natural gas gathering and processing facilities in the Permian b...

Union strike under way at US refineries, petchem plants

02/02/2015 The United Steelworkers Union (USW) has instituted a strike at nine US refining and petrochemical production plants following a breakdown in negoti...

Chinese plant commissions propylene unit

01/30/2015 Sanyuan Petrochemical Co. Ltd. (SPCL), a subsidiary of Zhejiang Fuling Holding Group, has commissioned a 450,000-tonne/year propane dehydrogenation...

Shell, Iraq ink deal for petrochemicals complex

01/29/2015 Royal Dutch Shell PLC has entered a preliminary agreement with Iraq to construct an $11-billion grassroots petrochemicals complex in the country’s ...

Citing lower oil prices, Sasol delays Louisiana GTL plant investment

01/28/2015 South Africa’s Sasol Ltd. says it will delay the final investment decision on a large-scale, gas-to-liquids (GTL) plant in Louisiana as part of the...

Trinidad ULSD plant won’t be built in 2015, Petrotrin executive says

01/28/2015 Trinidad and Tobago’s state-owned Petrotrin has announced that its $500 million ultralow-sulfur diesel (ULSD) plant cannot be commissioned because ...
White Papers

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by
Available Webcasts

On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected