Minimum Operating Level (MOL) Oil shortages coming?
Post subject: Minimum Operating Level (MOL)
Lots of chatter on this Message Board...
I know that Ike is a problem but this seems to be something more/different?
Anyone know anything?
http://www.peakoil.com/fortopic28679-240.html The peak oil crisis: The minimum operating level
Quote:
There has been much discussion about gasoline inventories in the US lately and rightly so. Every Wednesday morning the Department of Energy releases a snapshot of US oil and product inventories at the end of the preceding week. As US gasoline inventories fell dramatically during the past few months, it is this report, as interpreted by many buyers and sellers of gasoline, that is largely responsible for the record high prices we are paying for gasoline.
Last Thursday, after the report was issued, gasoline prices jumped nearly 10 cents in a single day. On Tuesday of this week, before the report was issued, gasoline prices fell by 10 cents a gallon based on analysts' guesstimates that inventories would increase and there would not be serious shortages this summer. It is clear that the size of our gasoline stockpile has become an important number, not only for everyone who drives, but also for the future of our economy.
The number is currently around 197 million barrels, but there is more to the story than one number. Now that we are all fixated on gasoline inventories, it is important to know that America has two largely unconnected oil worlds - the five west coast states (California, Oregon, Washington, Nevada, and Arizona) and the rest of the country. The West Coast gets its imported gasoline supplies by tanker across the Pacific. The rest of the country gets its imports from tankers across the Atlantic. As there is little transfer of gasoline between the two regions, what comes to the west coast is consumed on the west coast. Thus when one reads of a big change in gasoline imports, it is important to find out which coasts got the imports. Last week for example, 1.2 million of the 1.7 million barrel increase was on the west coast leaving very little to increase the stockpile in the rest of the country.
The next important point about gasoline stockpiles is that not all of it is useable. As gasoline is largely delivered by pipeline, barge and coastal tankers these days, a lot of gasoline is tied up in transit. Thus the amount of gasoline "trapped" in transport is substantial. This "trapped" gasoline is known as the "minimum operating level."
The Department of Energy used to publish this number, but stopped doing so a few years ago on the grounds they were not confident that it was accurate. This week, however, the old number for the minimum operating level surfaced in a 3-year-old government report and it turned out to be 185 million barrels - very close to the 197 million in the inventory. It really does not matter what the actual minimum level is, for any figure remotely close to 197 million is cause for concern. If stockpiles - on either coast - drop much more, we are going to find out, the hard way, exactly where the minimal operating level is, for that will be the day the shortages develop.
Meanwhile, alarm bells concerning low gasoline supplies are going off across the country. In addition to the EPA specifically stating that shortages are occurring in the six states where it waived gasoline content rules (such as not requiring ethanol to be mixed in with gasoline), many areas reports short supplies. Wholesale prices across the country, including the Northeast US and NYC, are now higher than the widely quoted futures price (which requires delivery only about the end of the month). Wholesale prices increased again today in the greater Chicago area, the Gulf Coast, and the southeast US.
As discussed further above, shortages start to appear when gasoline inventories approach minimum operating levels. If MOLs are reached only in certain states, or regions, the distribution system can adjust to some extent on a national level. For example, prices are 50 cents a gallon higher in Chicago than NYC, which draws supplies from the Northeast (which has enough for now) to Chicago.
When total inventories for the whole country drop below national MOLs, the game of whack a mole is over, and shortages start to spread.
DantesPeak just reported that the Coast Guard has halted all inbound traffic in the Houston Ship Channel because of Ike
At the moment it's probably not going to be allowed to officially support panic numbers. Reports will be labeled as insufficient data and due for revision.
The most important and immediate measure for us here will be a close watch on the prices (as Dantes and others are doing) and vigorous search for news on shortages and gas lines. I believe that some of this is going to be suppressed as long as possible to allow orderly and less panicked evacuation of the TX coast.
This looks like it may become very serious, very quickly. I find it rather bizzaro at the moment that we are the only one's "seeing" what is going on with supply.
This is a story that may be tenaciously denied until it cannot be denied any longer.
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