A federal advisory panel will assess U.S. oil refining capacity and crude oil stocks to see if steps can be taken to boost energy supplies, U.S. Energy Secretary Spencer Abraham said on Tuesday.
"There is no question that one of the significant energy challenges we face is insufficient refinery capacity," Abraham said at a meeting of the National Petroleum Council. The council, made up of oil and natural gas industry executives, is a federal advisory committee to the U.S. energy secretary.
Abraham also asked the council to study current assumptions about adequate U.S. crude oil inventories. The industry now uses a threshold of 270 million barrels to determine whether supplies are adequate or not, but Abraham questioned whether that assumption is "still appropriate."
"It's obvious that inventory levels are one of the things the market watches very closely, and they play a role in setting prices," Abraham said.
Nine industry analysts polled in a previous Reuters survey agreed the inventory figure should be lowered, possibly as low as 250 million barrels.
The crude inventory threshold has been a moving target for an industry that has seen many drilling advances over the last few decades.
In 1983, the National Petroleum Council found the level signaling low inventories was 285 million barrels, which rose to 300 million barrels when the panel again addressed the issue in 1988, before falling to 270 million barrels in 1998.
Last week, the Energy Information Administration reported that U.S. crude oil stocks totaled nearly 303 million barrels, a level that was about 9 million barrels below the five-year average for this time of year. Traders expect crude oil stocks to rise by about 1 million barrels when the EIA issues its weekly report on Wednesday.
John Felmy, chief economist of the trade group American Petroleum Institute, said the current threshold has been used since early 1990s and may be outdated.
"With new technology, we really don't know what that (adequate) level is," Felmy told Reuters on the sidelines of the meeting.
"It makes sense to have another high-quality study," said Bob Slaughter, president of the National Petrochemical and Refiners Association. "Demand for our products has kicked in in a big way."
Record-high retail gasoline prices last month prompted some Republican lawmakers to urge construction of the first new U.S. oil refinery in three decades.
Last week, the U.S. House of Representatives approved a bill that would ease environmental regulations to clear the way for construction of refineries in areas with high unemployment. However, the bill has virtually no chance of passage in the Senate.
Experts estimate building a new refinery would cost upwards of $1 billion. The last independent U.S. refinery was built in 1976.