GREAT NEWS...

[WYCAT]

No, no retail store has been refused a shipment to date. However, we have had to alter refinery production to accommodate gas and diesel shortages in the coming weeks. We have also been alllowed to lower a number of QC targets, i.e. RVP requirements, sulphur amounts, etc. which allows the refinery to put more barrels out. This was mandated by the EPA to soften the blow of shortages, not by the refiners themselves. We buy approximately 15,000 Bbls./Day from a competitor pipeline that originates in the Gulf Coast region and they have cut our allocation back to 7,000 in October. Therefore, to meet our daily supply demand we have to find another source for that 8,000 Bbls./Day loss next month. Because our refinery is currently running at about 110% of capacity upping production further is not an option. Our only real option is to defer that product we are making for shipment to the SLC market to Denver, which is a good business move since margins are about 15c/gallon higher in Denver right now, even though that would therefore put a serious pinch on product in the SLC market. Quast is correct in that crude oil availability (not price) is rarely a problem with gas prices. Most refineries are running at record rates (and yes record profits) and are selling all that we can make. When 25% of the US production is cut off for even a week, that is going to affect prices and eventually there will be shortages. There is not a never ending supply of product in the system waiting. We are actually not seeing it here in the Rockies as bad as other parts of the country. When Katrina hit, both Colonial and Plantation pipelines where shut down for days and they supply over 90% of the product to the entire Eastern seaboard. Those barrels just can't be replaced by someone else and outages did occur for a short period of time.

To date since Rita, increased prices at the pump and to you personally can be directly attributed to Big Oil using the chance to increase profits immediately and that is wrong IMO. However, with Rita being the second blow the refining business took this year what "fat" we carry in reserve having been tapped, unless things change quickly October is going to get even worse and when shortages do occur watch out.

[lifeloyalsigmsu]

No, no retail store has been refused a shipment to date. However, we have had to alter refinery production to accommodate gas and diesel shortages in the coming weeks. We have also been alllowed to lower a number of QC targets, i.e. RVP requirements, sulphur amounts, etc. which allows the refinery to put more barrels out. This was mandated by the EPA to soften the blow of shortages, not by the refiners themselves. We buy approximately 15,000 Bbls./Day from a competitor pipeline that originates in the Gulf Coast region and they have cut our allocation back to 7,000 in October. Therefore, to meet our daily supply demand we have to find another source for that 8,000 Bbls./Day loss next month. Because our refinery is currently running at about 110% of capacity upping production further is not an option. Our only real option is to defer that product we are making for shipment to the SLC market to Denver, which is a good business move since margins are about 15c/gallon higher in Denver right now, even though that would therefore put a serious pinch on product in the SLC market. Quast is correct in that crude oil availability (not price) is rarely a problem with gas prices. Most refineries are running at record rates (and yes record profits) and are selling all that we can make. When 25% of the US production is cut off for even a week, that is going to affect prices and eventually there will be shortages. There is not a never ending supply of product in the system waiting. We are actually not seeing it here in the Rockies as bad as other parts of the country. When Katrina hit, both Colonial and Plantation pipelines where shut down for days and they supply over 90% of the product to the entire Eastern seaboard. Those barrels just can't be replaced by someone else and outages did occur for a short period of time.

To date since Rita, increased prices at the pump and to you personally can be directly attributed to Big Oil using the chance to increase profits immediately and that is wrong IMO. However, with Rita being the second blow the refining business took this year what "fat" we carry in reserve having been tapped, unless things change quickly October is going to get even worse and when shortages do occur watch out.

Well it's good to read a take from someone who works within those companies but I do have one question for you WYCAT.

I was going through my gas receipts a couple of weeks ago and in Feb '05 I was paying 1.92 for regular unleaded and 7 months later I'm paying from 2.83-3.05 (the range this month). With the cutbacks your company has been receiving can you still rationalize or justify how gas is $1 expensive despite hearing how companies like Exxon-Mobil report a $7.64 billion profit in the last quarter (last quarter or maybe FY)?

[El_Gato]

Just another little "tidbit" regarding fuel prices:

When I bought my store 6 years ago, a tanker load of fuel cost me less than $12,000.

Today, for the same GALLONS of fuel, I will pay just under $38,000.

No matter how much "spin" Big Oil puts out there about inflation-adjusted or consumption-adjusted figures, that's still a TRIPLING of the price in just 6 years.

FYI, when my Dad got into the oil business in 1972, SIX tanker loads of fuel cost him $18,000. (not sure what size those tankers were, though, just thought it was informative/interesting)

[Hell's Bells]

Just another little "tidbit" regarding fuel prices:

When I bought my store 6 years ago, a tanker load of fuel cost me less than $12,000.

Today, for the same GALLONS of fuel, I will pay just under $38,000.

No matter how much "spin" Big Oil puts out there about inflation-adjusted or consumption-adjusted figures, that's still a TRIPLING of the price in just 6 years.

FYI, when my Dad got into the oil business in 1972, SIX tanker loads of fuel cost him $18,000. (not sure what size those tankers were, though, just thought it was informative/interesting)

how would more oil refineries or refining oil from oil shale help the gas prices?

[El_Gato]

personally, hells, I don't think more REFINERIES would do much more than soften, or slightly lessen the effect of something like we've just seen. I'm getting a little tired of Rush and Hannity screaming that more refineries would significantly improve the situation we currently find ourselves in. Yes, they would be like an "insurance policy" against disasters like Katrina & Rita, but during "non-crisis" times, they would do nothing more than INFLATE the prices we pay, IMO.

Prior to Katrina/Rita, there was no supply problem within the U.S.; in other words, all of our DEMAND was being met by our existing refinery system. Yes, as WYCAT stated, most U.S. refineries are "busting at the seams" and are maxed out capacity-wise, but they WERE keeping up with demand. More refineries would obviously increase SUPPLY, but would have NO impact on demand. Increased supply coupled with flat demand SHOULD result in lower prices, BUT, by increasing refining capacity (supply) Big Oil would incur higher expenses (ie more refineries to build/run/maintain) but would be funding them with an essentially static demand curve. How would they recoup those higher refining costs? Hmmmmmmmmm (cue the Jeopardy music).... Through higher prices to the consumer? DING DING DING DING DING!!!

In short, it makes the most economic sense to create the products your customers are going to demand as cheaply as possible, right? In the oil industry, that means pushing as much fuel as you can sell through the smallest # of refineries as possible, and that's pretty much where we are in America. During times of "non-crisis", more refineries would only add to the overhead of Big Oil which, IMO, would mean higher prices overall...

The hurricanes definitely have created a short-term "hiccup" in the fuel industry, but it won't last very long, certainly not nearly as long as Big Oil will hold the price of fuel up. Within a month or so, the U.S. supply "system" will be back to Pre-Katrina mode but you watch, I guarantee you the prices will not get back to Pre-Katrina levels for MONTHS, if ever; hence, the BILLIONS of $$$ of profits Big Oil will realize in the 3rd & 4th quarters of 2005.

Theoretically, creating gasoline & diesel from oil shale WOULD help lower the price for those products simply because Big Oil would have more sources of "raw material" to create them from. That will only work, however, if the shale industry can create a barrel of crude (for lack of a better term) for no more than the "going rate" that other sources are charging.

OK, that's the bell; make sure you read chapter 2 before class tomorrow!

[WYCAT]

Well it's good to read a take from someone who works within those companies but I do have one question for you WYCAT.

I was going through my gas receipts a couple of weeks ago and in Feb '05 I was paying 1.92 for regular unleaded and 7 months later I'm paying from 2.83-3.05 (the range this month). With the cutbacks your company has been receiving can you still rationalize or justify how gas is $1 expensive despite hearing how companies like Exxon-Mobil report a $7.64 billion profit in the last quarter (last quarter or maybe FY)?

I am not sure I understand the question?

[Ponycat]

My understanding is there is no real profit in the refining of oil, and oil companies don't want more refineries for obvious reasons so any new ones would most likely started an ran by someone other than an oil company. Sounds like a guy is trying to get one built down in Arizona but it is still at least 2 years off.

also, in the seventies there were gasoline shortages and flat out no gasoline and thus the prices. This simply isn't the case now. I'm OK with 2-2.25/gallon I've always said gasoline was too cheap but this is getting ridiculous.

[Hell's Bells]

My understanding is there is no real profit in the refining of oil, and oil companies don't want more refineries for obvious reasons so any new ones would most likely started an ran by someone other than an oil company. Sounds like a guy is trying to get one built down in Arizona but it is still at least 2 years off.

also, in the seventies there were gasoline shortages and flat out no gasoline and thus the prices. This simply isn't the case now. I'm OK with 2-2.25/gallon I've always said gasoline was too cheap but this is getting ridiculous.

Also people who live on the california cost dont want oil drilled there because...like it like interfears like on my like beachfront like view like...like duh!!!!!!!!! ooh yeah and the whales *not star jones...* will die because they would run into the derricks and get cuncussions....

[lifeloyalsigmsu]

Well it's good to read a take from someone who works within those companies but I do have one question for you WYCAT.

I was going through my gas receipts a couple of weeks ago and in Feb '05 I was paying 1.92 for regular unleaded and 7 months later I'm paying from 2.83-3.05 (the range this month). With the cutbacks your company has been receiving can you still rationalize or justify how gas is $1 expensive despite hearing how companies like Exxon-Mobil report a $7.64 billion profit in the last quarter (last quarter or maybe FY)?

I am not sure I understand the question?

Despite the effects of these recent hurricanes, do you find justification for gas being 1+ dollars more expensive per gallon than compared to 7 months ago. In other words, you mentioned your company went from 15000 barrels a day to 7000 barrels from the pipeline in the gulf. Does this justify the increases the consumer has seen?

I figure with you working in this field you might have some more insight. That's all I was asking.

[WYCAT]

There has been a real push in the past 10 years regarding alternate sources of crude oil such as oil from shale. Approximatley 1/2 of the crude our refinery processes in a day comes from the tar sands in Canada - known as "Synthetic Crude" which is another example. There is reportedly a 100 year supply at the current usage so it is quite a field. It is roughly $10-15/barrel less than the crude prices you hear about on the news and the yields are good for making gas and diesel both. The Rockies are full of crude oil it is just too expensive to get it out of the ground so buying available barrels is easier.

As far as more refineries I agree with Gato. However, I think the bigger problem is moving both crude oil and finished products across the country. Our pipeline infrastructure is taxed right now and laying new pipelines presents as big or maybe even bigger of a challenge as building refineries. Most refineries in the Rockies are currently expanding and increased throughput at existing plants will happen. Grassroot construction I don't think so. The biggest refinery in the Rockies region currently processes 70,000 Barrels per day. One of Exxon-Mobil's plants in LA alone runs over 1,000,000 BPD. The Rockies is a small volume market overall but the margins here are spectacular and unfortunately we pay for that every fill up.

[El_Gato]

My understanding is there is no real profit in the refining of oil...

Pony,

Since 1972, I've been in/around just about every level of the oil industry. Any truth in your above comment is simply due to the particular way an individual oil company accounts for its revenues and expenses.

When I worked for Unocal 76, the President of the company was an Engineering guy; the way he structured the company and it's accounting systems, the exploration/extraction/production "side" of the company made big profits while the marketing side consistently "lost" money. Overall, the company MADE $$$.

Exxon/Mobil may very well show a loss (on paper) in their production (refining) department, but in the grand scheme of things, that's just "smoke & mirrors" as the company as a whole will no doubt experience record profits (again) this year.

There are still a handful of "independent" refiners in the U.S. (like MRC in Great Falls) but they don't play much of a role in the big picture; I don't know what their profits look like overall but they are generally nothing more than a "gap" supplier for Big Oil, so they are essentially irrelevant... (However, don't think the MRC folks aren't laughing all the way to the bank on this whole deal; they're getting FAT off this fiasco!)

[WYCAT]

Now I understand and the answer is hell no. Gato is right in that we have really had no shortages or outages (yet) in our region and increased prices here are nothing but profit. Barrels have been redirected from shipment to Denver and instead have gone other directions but we have "weathered" each of the storms by drawing down available inventory. Rita hurt us here a lot more than Katrina and both events triggered major increases which can not be justified. The most common defense to price jumps I have been given is that it tends to make people be more conscious of their usage which helps supply issues but that is a stretch.

Right now though, if we were to have another significant supply problem any time soon we would truly be out of reserve and then the pinch would be on.

If it makes anybody feel better, I just received my annual profit sharing check and it was 4% just like the last five years. The profits aren't being passed down to us bottom feeders so I feel your pain.