OIL PRICE JUMPS: PREVENTABLE?

EIA: Refinery outages usually don’t affect prices
Nick Snow, April 3, 2007 (Oil and Gas Journal)

WHO
The US Energy Information Administration

WHAT
EIA report on refinery unit outage impact on energy prices: "Refinery Outages: Description and Potential Impact on Petroleum Product Prices" requested by US Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM). The report’s headline is that planned outages have little impact on price but the details reflect the inevitable upward pressure on price in the event of a variety of special cases. Three mentioned here were a slow return to normal output at the start of a driving or home heating season, a scheduled maintenance at a time when secondary supplies fail or a disaster such as the Hurricanes Katrina/Rita debacle.

WHEN
The report was released at the end of March. It surveyed its entire, relevant data base.

WHERE
Refineries across the country and around the world.

WHY
Maintenance, overhaul and safety checks require planned outages at refineries in 1-2 or 3-5 year periods and last 20-60 days. In a market with little excess supply, it is conceivable unplanned outages or planned outages coinciding with unforeseen circumstances could generate heightened demand, driving up prices for refined products.

QUOTES
- "We have heard from several experts that the reason we are facing high prices at the pump stems from underlying supply issues. The amount of global excess capacity to produce oil and refine gasoline has been declining. Experts claim it has entered 'the red zone' and coupled with other threats to energy output (Nigeria, Venezuela, Iraq, and Iran), [a] perfect storm has been created…" (July 3, 2006 letter Bingaman letter to US Energy Secretary Samuel W. Bodman)
- "Prices are affected not by production changes alone, but mainly by the balance in supply and demand, as represented by inventory levels. If supplies are abundant relative to demand (e.g., high inventories and off-peak time of year), a refinery outage, even an unplanned outage, is likely to have little impact," the federal energy forecasting and analysis service said…Unplanned outages can be very disruptive since they allow for little, if any, lead time to plan…”