WWTBAM Bored

Nothing about why people would vote for Clinton, Obama, or McCain.

http://www.chron.com/disp/story.mpl/hea ... 31233.html

I can understand gasoline prices rising with the shutdown of a refinery, but it would seem that a refinery shutting down would increase crude inventories thus driving the price of crude oil down, not up.


Delaware refinery outage stokes crude futures

Crude oil rose to a one-month high after Valero Energy Corp. shut a Delaware refinery because of a power failure late yesterday.

Valero, the biggest U.S. refining company, said it is restarting units at the company's refinery in Delaware City after the shutdown, caused by storm-related high winds.

Crude oil for March delivery rose $1.38, or 1.5 percent, to $93.15 a barrel at 11:51 a.m. on the New York Mercantile Exchange. Prices reached $94.72, the highest since Jan. 10. Futures reached a record $100.09 a barrel on Jan. 3.

Valero's Delaware City refinery can process 190,200 barrels of oil a day, according to U.S. Energy Department and company data.

They've updated the article since you quoted it.

It now make more sense.

BackInTex wrote:Nothing about why people would vote for Clinton, Obama, or McCain.

http://www.chron.com/disp/story.mpl/hea ... 31233.html

I can understand gasoline prices rising with the shutdown of a refinery, but it would seem that a refinery shutting down would increase crude inventories thus driving the price of crude oil down, not up.

It wouldn't increase crude inventories...well, maybe it would, depending upon how much crude stock the refinery keeps on hand for its operations.

That inventory would sit idle, not be released back into the market for sale.

Assuming the refinery has enough crude on hand for a couple of days' operation, it could help fuel a price increase because the lack of refined products from these facilities would have to be made up somewhere else and require a draw-down of the "missing crude" (that's sitting at the idle facility waiting to be refined).

Even the tiniest of disruptions anywhere in the supply chain have a ripple effect on the entire chain, backwards and forwards, when the gap between supply and demand is so tight (actually, demand is OUTSTRIPPING supply, according to many experts, and the market actually has periodic "rolling shortages" all over the world).

Jeemie wrote:

BackInTex wrote:Nothing about why people would vote for Clinton, Obama, or McCain.

http://www.chron.com/disp/story.mpl/hea ... 31233.html

I can understand gasoline prices rising with the shutdown of a refinery, but it would seem that a refinery shutting down would increase crude inventories thus driving the price of crude oil down, not up.

It wouldn't increase crude inventories...well, maybe it would, depending upon how much crude stock the refinery keeps on hand for its operations.

That inventory would sit idle, not be released back into the market for sale.

Assuming the refinery has enough crude on hand for a couple of days' operation, it could help fuel a price increase because the lack of refined products from these facilities would have to be made up somewhere else and require a draw-down of the "missing crude" (that's sitting at the idle facility waiting to be refined).

Even the tiniest of disruptions anywhere in the supply chain have a ripple effect on the entire chain, backwards and forwards, when the gap between supply and demand is so tight (actually, demand is OUTSTRIPPING supply, according to many experts, and the market actually has periodic "rolling shortages" all over the world).

I guess maybe if there is excess refining capacity elsewhere to fill the demand for the refined product produced at these facilities it might have a temporary impact due to logistics, but if two tankers a day were delivering oil to this facility then those two tankers would just divert to another refinery if that refinery had excess capacity.

But in an efficient maket, which this should be, the supply of crude would remain stable and the demand (assuming excess refining capacity elsewhere) would remain stable. But from what I understand is that there is no excess refining capacity thus there is crude out there with no where to be refined. So logic says the supply of crude would be too high for the demand (by refiners) thus the price would go down.

BackInTex wrote:But in an efficient maket, which this should be, the supply of crude would remain stable and the demand (assuming excess refining capacity elsewhere) would remain stable. But from what I understand is that there is no excess refining capacity thus there is crude out there with no where to be refined. So logic says the supply of crude would be too high for the demand (by refiners) thus the price would go down.

a) Oil markets are anything but efficient.

b) I don't get where you think there is an excess supply of crude. Supply and demand are tightly balanced right now- as a matter of fact, as I mentioned, supply many times OUTSTRIPS demand for crude.

Everything is tight right now. Oil is being pumped from the ground and shipped to wherever and then refined almost as fast as it's being pumped from the ground. There's little spare refinery capacity AND little spare pumping capacity.

Disruptions anywhere in the supply chain in such a tight environment cause ripple effects everywhere.

However, as was pointed out, the Venezuelan issue and the problems in Nigeria probably contributed more to the price spike than anything else.

as I mentioned, supply many times OUTSTRIPS demand for crude.

I think this should be reversed. Or not.