Nick's Place

Nicholas Barnard EC200 MWF 1-1:50PM

Journal Entry #2

Gasoline tends to be a hot economic issue in today's world. The major news development in the recent week was President Clinton releasing 30 million barrels of oil from the Strategic Petroleum Reserve (SPR). USA Today published an interesting article in its September 27^th 2000 issue, entitled, “U.S. refineries can't match demand for fuel.

The President's goal was to reduce oil prices, and attempt to induce the suppliers into forgo their refinery maintenance cycles, which usually start now. This tends to be too little too late, because planned maintenance like the ones that the refiners are embarking on now are planned for well in advance.

Part of the current oil crisis is the fact that America's refineries are running their capacities in the high 90^th percentile, currently, at 96%. Traditionally in the fall the refining capacities fall down to the low 90^th percentile or the high 80^th percentile. Last year the refineries operated at 91.9% capacity.

The refining shortage isn't worldwide. In the Far East the refineries are running at 50-60% capacity. What has prevented these refiners from shipping finished products to the US is the marginal cost. While they could produce much more finished product, the costs they would incur to then ship the product to the US would outweigh the profit to be made. Essentially the marginal costs outweigh the marginal gains.

Imported heating oil would become a reality “…if crude falls below $25 a barrel, and heating oil prices stayed put, the economics would work out…” and allow the overseas suppliers to profitably supply finished oil products to the US.

Works Cited

Temple-Raston, Dina, “U.S. refineries can't match demand for fuel,” USA Today, 27 September 2000, Late Edition., B1,B2