Marginal Complexity in the Refining Industry

Am I the only guy still around that remembers that plate spinning act that used to be on TV?


Here it is:
http://www.youtube.com/watch?v=Zhoos1oY404

We used to watch this stuff in the 60's for entertainment....

Anyway, the essence of the act is that this guy has the capacity to spin X number of these plates and bowls on the sticks.... You have to keep the ones you have going, then gradually add complexity until you get the whole thing up and running. For you and I, spinning one plate would be difficult, but this guy is an expert, and he can do a lot of them.....By "marginal complexity", we mean that the problem gets increasingly difficult with the addition of the one plate...

So, would it be much of an act if he only spun four bowls instead of five? The system would be running at a state slightly below its maximum capacity. Well, the guy has to be talented, it is true, to do the four bowls, but you would not be quite as impressed, and perhaps for him, the act would be a bit more boring.

The situation in the refinery business right now is a lot like this. There are only four bowls spinning. It takes quite a bit of effort to keep the system spinning at its current level, but there is no need to add the extra complexity, which you can only do temporarily anyway, and so the guy is just going to stand there for awhile and keep the fourth bowl spinning without adding the fifth.....he could add another, but the system does not require it right now...

So I think we're going to go another week as follows: The capacity utilization will be 89 percent or so, the demand will be not quite what it was in 2007 but higher than 2009, and the imports will be about what is needed to keep inventories about where they are. Right now, there is plenty of fuel around, the contango is still in effect, but the market is well supplied and there is no compelling reason to store oil if the buyers think there will be a demand decline later because of a double dip or something.... I think a lot of the emotion in the marketplace to keep oil around went away a month ago when the price collapsed.....

So we will see what happens. Keep in mind that if he does not go back and do maintenance on his bowls, he will lose one.... so he will do that for awhile at least, even if he does not add the fifth bowl....and by fall, maybe he will go back down to 3 bowls and a couple of plates, and have some spare time, to fool with the spoons and glasses....