Heating oil worries mount despite SPR release announcement

Oct. 2, 2000
US heating oil supplies remain a chief topic of concern, despite the imminent release of more crude oil from the US Strategic Petroleum Reserve.

US heating oil supplies remain a chief topic of concern, despite the imminent release of more crude oil from the US Strategic Petroleum Reserve.

The American Petroleum Institute says that US refineries are running flat out to ensure that consumers have a readily available heating oil supply this winter. And US rancor directed at the Organization of Petroleum Exporting Countries over high oil prices notwithstanding, OPEC stalwart Venezuela has reiterated its pledge to help the US cope with the looming heating oil shortfall.

API comments

John Felmy, API's policy analysis and statistics director, said that, while the Clinton administration's release of SPR crude may reduce crude and product prices somewhat, it will not necessarily translate into increased production of heating oil. He explained that, with US refineries running near capacity, their ability to process additional crude is limited.

Felmy said, "There is a limit to how hard refineries can run, consistent with providing for the safety of refinery workers. Companies must soon 'turn around' their refineries to make more heating oil this fall and be prepared to meet potential increases in demand. During a turnaround, like the one traditionally scheduled in the fall, planned vital inspection and maintenance is performed to ensure safe and efficient operations."

He said US refineries, as of the week ended Sept. 15, were operating at over 95% of capacity, us vs. last year and well above historic levels.

"It may be possible to push production higher for very brief periods, but the decision to do so must be made by individual companies, which will not compromise the safety of workers," said Felmy.

He said that, despite concern about low heating oil inventories for this time of year, "most heating oil supplied during the heating oil season-in the range of 90%-comes directly from refinery production to users, bypassing the inventory system."

Felmy said record amounts of gasoline and distillate fuel have been produced this year. Since April, building of heating oil inventories has been substantial, but stocks started at lower levels and remain at historical lows.

He said stock-building was restrained by gasoline supply problems in the Midwest earlier in the year, when refiners focused on producing that product.

He also said strong current demand for distillates has affected the volumes available for storage.

Venezuela's pledge

Venezuela will do everything possible to maximize its production of heating oil for the US market to help avoid shortages in the Northeast states this winter, said state oil firm Petroleos de Venezuela SA (PDVSA). The US said it has adequate product storage facilities, said PDVSA, so it will not take advantage of the Venezuelan company's recent offer of the use of a terminal in the Bahamas for heating oil storage (OGJ Online, Sept. 19, 2000).

"Our efforts in this regard are simply a continuation of the valued longstanding relationship between Venezuela, which prides itself for its consistency and reliability of supply, and the United States, our most important customer, as it tries to handle a difficult market situation," said Bernardo Alvarez, Venezuelan vice-minister of energy.

Venezuela noted that crude oil production increases, such as that recently promised by OPEC, would not be of help to the US in a heating oil shortage situation. "In the United States, high refinery utilization, deep conversion units operating at full capacity, routine refinery maintenance shutdowns-which have already been delayed and will be required in the near future-and lack of investment to upgrade refinery facilities are all factors that preclude any effective use of additional crude oil to increase significantly low heating oil inventories," said a government statement.

There is even less US crude refining capability for Venezuela's heavy, sour crude, PDVSA pointed out. "Venezuela, however, has made, and is currently making, substantial investments to upgrade its refinery system to satisfy future heating oil demand," said the statement.

PDVSA officials also met with members of Congress from the US Northeast to discuss alternative solutions that could help the region's fragile heating oil situation. One idea discussed is a possible meeting of US federal and local government officials and consumers with Venezuelan government officials and PDVSA representatives to explore solutions.