Oil futures traded up at midday on Tuesday even though U.S. inventories are expected to have increased in the weekly Dept. of Energy report tomorrow and OPEC promises to keep supplies up for the coming months.
Light, sweet crude ticked $48.65 at just after noon and Brent North Sea crude staying about the same, having only fluctuated 11 cents at $48.98. Gasoline was up about 2 cents a gallon after trading at below $1.40 a gallon briefly yesterday.
OPEC maintains they can handle the worldwide demand and keep production at 25-year highs as long as is needed. They currently pump about 30 million bpd and say they have some room to grow for additional production. OPEC also revised down the oil demand growth estimate by about 80,000 barrels. They also went on to say that they expect another 10% added to the capacity as new oil field come online.
“Slower demand growth for the United States and China, coupled with the large increases in OPEC output since mid-2004 and the substantial efforts by member countries to increase production capacity should remove a large part of the speculative premium in the oil price,” an OPEC report said.
The problem however is not petroleum inventories. Right now the U.S. is hanging on to the largest oil inventories since 1999 and the Dept of Energy report is expected to increase inventories over a million barrels.
Bottleneck Under Pressure
The problem remains bottlenecked refineries in the U.S. and elsewhere. The U.S. hasn’t built a new refinery since 1976. The number of working refineries is down since the 1980s and while there has been discussion of new ones, even by President Bush, nothing is being done.
U.S. refineries demonstrated consistent maintenance problems throughout the spring. The Conoco/Phillips facility in Louisiana continues with one problem after another and remains down this week after power outage problems from last week. They were already down once this year for two weeks for unscheduled maintenance issues and other facilities have had problems. Sunoco had reformer problems at their facility a couple of weeks ago.
Despite these problems, the refineries overall have been running at over 90% of total capacity. As gasoline consumption continues to grow world wide in China, India and the U.S. Right now, the real problem remains at those refineries, particularly in the U.S. and no one seems ready to start building the new facilities and even if they do, it won’t help the problems in the short term.
The primary concern for most observers is how this will play out at the gas pump. With the national average at still over $2 a gallon, travel is still expected to be low or at least much closer to home for the summer.
John Stith is a staff writer for murdok covering technology and business.
