One reads much about the recession now being over, the economy is improving, yet the recovery is a jobless recovery because employment is not increasing. Is there a way to independently evaluate the state of the US economy? I maintain that there is. Simply look at the refinery percent utilization chart, as shown below. If and when the economy starts growing again, this chart will show an upturn in utilization. (the "If" is included because with the current crop of bumblers in Washington running the show, it is by no means certain this recession will end.)
This is from the EIA website, and is updated weekly. Data is also provided in addition to the graph. As can be seen, the latest figure for refinery percent utilization is 81.8 percent. This will likely drop another 5 percent to 76 percent by the middle or end of January 2010. Even in economically good times, refineries take the winter months to shut down for repairs and maintenance - not all of them at once, but many do. The chart has a general saw-tooth shape of a yearly minimum in January, then a steady increase until July or August, then a decrease again. The average difference between a peak and a minimum is approximately 10 percentage points.
UPDATE 1 (Nov 4, 2009): Utilization dropped again this week, "Refineries operated at 80.6 percent of their operable capacity last week." [end update]
UPDATE 2 (Nov 12, 2009): Here we go. Utilization dropped again this week, "Refineries operated at 79.9 percent of their operable capacity last week." [end update 2]
UPDATE 3 (Jan 21, 2010): Utilization dropped again this week, to 78.4 percent. Gasoline inventories increased, and crude prices dropped. [end update 3]
UPDATE 4 (Feb 5, 2010): Utilization dropped again to 77.7 percent. Large snowstorm and very cold weather on the East Coast this week will decrease gasoline demand for next week, so expect yet another decrease in utilization. [end update 4]
The graph also shows a steady down-trend since 2004 in utilization, which may reflect increasing vehicle efficiency.Refinery percent utilization is also affected by imports of refined products, refinery capacity additions, and refinery shutdowns. Thus, it is not a perfect indicator of economic activity, but it is pretty good. There is one major refinery expansion starting up at this writing (Marathon at Garyville, Louisiana), which will provide approximately 1 percent additional capacity in the US. There is also one refinery closure announced by Sunoco, that will essentially offset the Marathon expansion. A much larger expansion is due online by Motiva, in 2012.
The waiting game is underway, with the refining companies each hoping the other guy will blink first and shut down a refinery. On the other hand, an optimist would find this an ideal time to buy a refinery, if he believes that demand will increase and prices will skyrocket due to Peak Oil shortages.
1 comment:
One thing that can be said, from inspection of the chart, is that there are PLENTY of refineries in the US. When an industry has an operating rate of less than 90 percent, it is foolish to build new capacity. This applies to any industry, not just oil refining.
Those who state that the US has high gasoline prices because there are not enough refineries, therefore we should build more refineries do not know of which they speak.
A couple of refining companies have spent money for major capacity expansions (Marathon in Louisiana, and Motiva in Texas) but these are turning out to be rather poor decisions.
Marathon is starting up the Garyville, Louisiana expansion presently (4Q 2009), when overall utilization is in the very low 80 percent range. This means that their profitability relies on their ability to have lower operating costs than another refinery, due to having the latest technology in their plant. If they are successful, they will drive another refinery out of business. Sunoco has already announced they will shut down a comparable sized refinery, with no intentions to restart it.
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