I'm not sure who initially pointed this fact out to me, it may have been Kevin Drum at Washington Monthly since he's been covering the oil topic much of late, but this a point which bears repeating.
A great many of the recent news articles on the spiraling prices of crude cite the lack of refining capacity as primary cause. Here's one for instance, and in this one, the Saudi Oil Minister Ali Al-Naimi explicitly blames lack of refining capacity as the primary culprit.
Given how much talk has centered lately around lack of refining capacity as the source of the high prices of crude, I think most of us in the general public are left to simply shrug and wonder how long it's going to take the oil companies to reinvest some of their recent record profits into increased infrastructure. But the problem is, if you take a minute to think about the argument in detail, it makes no sense at all.
Think about it like this: Limited refining capacity would result in limited supply of pump gasoline (and other refined petroleum products), thus with a fixed demaned, we would expect higher prices at the gas station. From the perspective of a barrel of crude oil, all other things being equal, reduced refining capacity should drive *down* demand for crude, thus lowering the price of a barrel. If you're operating already at the capacity of your refinery, any additional oil you buy above and beyond the amount needed to keep the pipeline flowing, is going to have to be stored somewhere, at an unnecessary expense.
Thus, whatever the exact situation may be, limited refining capacity in and of itself would argue for higher prices at the pump and a stable or declining price of a barrel of crude. And for the average person on the street, the specifics of this argument may seem finicky and confusing.
But for someone like the Saudi Oil Minister, or an oil company executive or industry analyst, this would not be an understandable off-the-cuff mistake to mistake or overlook. This really ought to be Oil Industry 101 material, if you think about it. I hate to sound all tin-foil-hat-ish, but it really sounds like a lot of people are pushing the "refining capacity" argument to cover up the elephant-in-the-room "diminishing supply of crude" cause.
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1 comment:
that's an interesting point.
but ultimately, the demand is increasing while the supply remains the same (despite the stockpiles of oil), because the capacity to refine the oil is exactly the same. so increase demand, even supply, = higher price. although, to apply economic theory to the oil cartel's oligarchy is stupid in the first place.
and as for the declining supply, my biggest fear is, when the oil rich nations are done with their oil fields and realize that they live in a big ugly desert, they're all going to move to hollywood to 'be in pictures'. ungh. the idea of never seeing cleavage in movies again seems pale in comparison to what they might do.
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