Economic Equilibrium in Petroleum Refining Operations

The lack of a continuous operating balance in petroleum refining, which isanalyzed in this paper, is by no means a feature solely of this division of theoil industry. Serious disequilibria of a capital as well as an operating natureexist both in the producing and marketing departments, while problems in theformer and to some degree the latter are complicated by political involvements.Attention has previously been directed to the unstabilizing influence ofpresent proration formulas in stimulating unnecessary drilling. Whileequilibrium in petroleum refining operations has been fairly well maintained inthe past decade, examination of departures may prove fruitful. Economic analysis is the application of time and motion study to thefunctioning of management, rather than labor. Properly applied it may revealchanges in policies that would increase the utility of the properties andfacilities of the industry for stockholders, employees and the public, whilecontributing a stabilizing influence to the general economy. The study ofeconomic equilibrium is essentially one of measurement and interpretation, requiring adequate data and the development of a technique of analysis thatemploys statistical and mathematical methods as a supplement to the broaddescriptive phase of economics. Economic equilibrium in petroleum refining is a dual concept. It embracesboth the over-all balance between total storage and total demand for majorproducts and the internal balance between the demands and inventories of thevarious products. The latter is the more complex of the two for it is concernedwith proportionating the supplies of the several products stemming from thejoint source to the demands for the individual products which are subject towide variations. All the products are essentially nondurable goods, and theyare used both by producers and consumers but in varying proportions. Motor fuelis very largely a consumer's good, while residual fuel oil is almost entirely aproducer's good, the other products falling between these extremes. T.P. 1030