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Stocks and flows—inventories in petroleum refining
Author(s) -
Tischer Robert
Publication year - 2020
Publication title -
opec energy review
Language(s) - English
Resource type - Journals
eISSN - 1753-0237
pISSN - 1753-0229
DOI - 10.1111/opec.12178
Subject(s) - crude oil , stockout , petroleum , refining (metallurgy) , inventory management , oil production , oil refinery , profit (economics) , production (economics) , petroleum engineering , economics , environmental science , operations management , chemistry , waste management , geology , engineering , microeconomics , organic chemistry
This paper addresses the question of whether an ( S , s ) inventory management model, combined with a stockout‐avoidance mechanism, is appropriate for explaining the inventory process for oil refining. The analysis uses a fixed‐proportion production function to model dynamic profit maximisation in crude oil refining. The model distinguishes the use of production crude oil from crude oil inventories as inputs into oil refining. The result is a relationship between oil production, oil inventory and the difference between the prices of crude oil and refined petroleum products. Estimation results indicate that the ( S , s ) model is consistent with data measuring crude oil inventory management and results also imply a modest stockout‐avoidance mechanism.