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May 05, 2008
Refinery capacity utilization
The most recent data point on refinery capacity from the EIA was 85% in February. Unless things have ramped up immensely in a way that hasn't been seen for years (which due to the higher than average inventories, I doubt is the case), then I am a little bit skeptical of claims that the supplies, even in the short run, are "fixed". (Get this data and more from the EIA.)
From the summer of 2006 to the summer of 2007, inputs of crude oil into the refineries went down, operable capacity went up, and idle capacity went up.
If capacity utilization were on the level it was in 2000, I'd be more inclined to see the supplies as fixed. Any extra capacity would suggest that the consumers would get some benefit from the tax holiday. But again, let me be very clear... the amount that the consumer would benefit would be a small fraction of the tax reduction--5 or 6 cents out of the 18.4 would be as high as I would be comfortable in guessing. Maybe more like 3 or 4 cents. That's just not enough to justify temporarily tinkering with the tax code to win political points. It's bad public policy. If you want to provide relief to working families, fine. There are a dozen better ways.
Posted by William Polley at May 5, 2008 02:53 PM
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The government's EIA thinks there is excess refining supply.
From the latest weekly report:
"In recent weeks, gasoline inventories have fallen sharply, even though imports have remained relatively steady, while demand has increased seasonally. This is mostly due to inventories being used as refiners undergo maintenance and reduce their capacity utilization in the face of low gasoline margins."
That means that if margins (profits) were to rise, then refiners might bring more supply back on line. The refiners are maximizing profits by holding back supply.
Posted by: Rex at May 6, 2008 04:30 PM
Yes... In fact, I linked to that in my first post on the subject, and that is why I've been standing firm in my claim that there would be some room for quantities to increase and prices to fall. (contra Krugman)
Just not much. And certainly not enough to make the effect noticeable or economically significant to the average household.
And given that it takes about 60 days to fully ramp up production (from what I have read), they would have to get started on it soon for it to even have that much effect.
Posted by: William Polley at May 6, 2008 05:28 PM