US gas glut; now storage in tankers

Last summer, too little gasoline. This summer, too much? Not from the point of view of US motorists, of course, who revel in being able to fill up wherever they go -- although at prices 30 cents a gallon or so higher than a year ago.

But these same motorists, conscious of that prices, are using about 9 percent less gasoline than they did a year ago.And industry, caught in the doldrums of recession, is burning less fuel oil.

This spells a problem for American oil companies, whose storage tanks are bulging. Some firms, said an expert, are keeping surplus crude in tankers, "an expensive and last-resort method of storing oil."

Why don't the major oil firms simply stop buying more crude, until they work their inventories down?

It is not that simple, according to experts of the National Petroleum Council and the Petroleum Industry Research Foundation, Inc.

"Major oil companies," said a specialist, "have firm commitments to buy crude from overseas suppliers, say Kuwait, Nigeria, or Saudi Arabia."

Indeed, the great scramble among oil firms in the past chaotic months has been to nail down gurantees of future supplies of oil.

The last thing the "Seven Sisters? -- the world's great oil companies -- want to do, said an expert is to jeopardize future supplies by reneging on present commitments to buy petroleum.

So the crude rolls in, forcing oil companies to refine more "product" -- gasoline, heating oil, kerosene, heavy fuel oil, etc. -- than market conditions justify, or to top up their storage tanks beyond a desired level.

"Empty space must always be available in tankage," says a recent study by the National Petroleum Council (NPC), an industry advisory group to the US Secretary of Energy.

Why? To allow normal operation of the refining and distribution system, if, to use an example, bad weather prevents a barge from picking up a load of product from a refinery.

If storage tanks were full, that refinery could not accept a load of fresh crude from a tanker in port, waiting to offload.

Other reasons are cited by the NPC, but they add up to what experts call the "maximum operating inventory."

"Put another way," said an industry official, "a part of each company's inventory must never be filled if the system is to work smoothly."

Another oil industry expert sees the current situation more in terms economics than actual storage capacity, which he believes is adequate.

"If your inventory of crude is relatively high," he said, "and your demand for product is relatively low, it makes no economic sense for a refiner to buy more crude."

Because of a relative glut of crude throughout the world, spot prices charged for noncontract oil have dropped sharply. Experts see little chance, however, that the 13-nation Organization of Petroleum Exporting Countries (OPEC) will lower its official price range.

So American companies, paying high prices for foreign oil, have to trim their profit mrgins to sell gasoline and other petroleum products in a tightly competitive US market.

Small independent refiners are squeezed by this trend mroe than major oil companies, which operate at all stages of the business -- from wellhead to gasoline pump.

Also hurt, according to experts, are independent service station owners, who are trimming their margin -- often from 16 cents a gallon down to 5 cents, said one source -- to keep their sales moving.

Motorists, unfortunately, get little benefit from this, for OPEC official price hikes, plus the gradual decontrol of US domestic oil prices, steadily boosts the basic cost of oil.