US Refining Utilization Picking Up

The percent utilization of oil refineries in the US is picking up slightly, which is perfectly normal for this time of year. Refineries traditionally use the winter months to shut down various units for routine repairs and major overhauls, then start processing again to build up inventories for the summer driving season.

Except this year. The inventories are already built up, and overbuilt actually. Still, refining utilization broke the 80 percent mark this past week, per the EIA, at 81.9 percent. The industry as a whole has excess capacity, leading to low margins and low or negative profits (losses). Refining utilization usually increases approximately 8 percentage points from the mid-February low to the summer maximum, thus this year we can expect approximately 85 to 86 percent utilization at the most. That is not nearly sufficient to bring profitability to the industry, and requires some refineries to permanently shut down. With over-stocked gasoline across the country, it might just be that refineries do not reach the 85 percent utilization this year.

It is also interesting, as I wrote earlier, that the trend in crude oil consumption is downward in the US. Crude oil consumption peaked in 2005 and is not likely to climb again soon, if ever. Peak Oil Demand has already occurred in the U.S. The Obama government is largely responsible for this continuing, having passed the law requiring automobiles to achieve 35 miles per gallon, on average, for new car sales. The rate of gas mileage improvement is much higher than historical crude oil consumption increase, thus oil demand will continue to decrease.

The EPA's logic is all wrong for requiring higher miles per gallon, as they based their requirement on reduced CO2 emissions that supposedly will prevent global warming and a host of disasters resulting, including coastal flooding from rising sea levels, melting ice caps, droughts, heat waves, and others. What will actually happen is that the demand for oil will decrease, the US' imports of oil will decrease, and the balance of payments will improve. At the same time, the price of oil will be somewhat less than it would be without the new mileage standards, which could reduce government tax receipts - those based on a percentage of the gasoline sales price.

It looks like Obama and company got one right - for all the wrong reasons, but it is a good thing when crude oil price drops and less money flows into the Middle East. Now, if they could just cut out the bio-fuels foolishness, which will increase diesel fuel demand because trucks and trains are used to haul ethanol around the country. Those trucks and trains consume diesel fuel, which requires approximately 3 barrels of oil to be refined for each barrel of diesel fuel produced.

Roger E. Sowell, Esq.

Marina del Rey, California