NEW REFINERIES IN OPEC AND OTHER DEVELOPING NATIONS.

EXPANSIONS IN OPEC AND THE GULF..

EXPANSIONS IN SAUDI ARABIA, KUWAIT, AND

IMPLICATIONS AND CONCLUSIONS . . .

IMPLICATIONS OF EXPANDED TRADE: WORLD OIL MARKET.

EXPANDED TRADE IN PRODUCTS: EFFECT ON OPEC STABILITY

OVERVIEW

1. CAPACITY GROWTH AND CAPACITY UTILIZATION: PRE-1973

O PRIOR TO 1973, PETROLEUM PRODUCT DEMAND WAS INCREASING
FASTER THAN REFINING CAPACITY. 8 MILLION BARRELS/DAY
OF NEW CAPACITY--MAINLY IN THE OECD--WAS UNDER CONSTRUC-
TION AT THE TIME OF THE OIL EMBARGO.

O AT THE SAME TIME, MANY OIL EXPORTERS AND OTHER DEVELOP-
ING COUNTRIES WERE ADVISED TO BUILD THEIR OWN REFINERIES
TO MINIMIZE FOREIGN EXCHANGE NEEDS AND CAPTURE VALUE

ADDED.

2. CAPACITY GROWTH AND CAPACITY UTILIZATION: EMERGENCE OF

THE POST-1973 CRISIS

O WITH THE RISE OF CONCERNS OVER ENERGY SECURITY, MANY
IMPORTING NATIONS BUILT REFINERIES TO ENHANCE THEIR
PERCEIVED ENERGY INDEPENDENCE.

O AS THE POLITICAL NATURE OF OIL WAS EMPHASIZED, MANY
OIL EXPORTERS FELT THAT A MAJOR PRESENCE IN THE REFINED
PRODUCT MARKET WOULD ENHANCE THEIR POLITICAL CONTROL
OF CRUDE.

O THUS, UP TO 1980, CONSTRUCTION OF NEW FACILITIES OUT-
PACED THE SLOWER GROWTH ON DEMAND, LEADING TO A CAPACITY
SURPLUS.

O FOLLOWING THE SECOND ROUND OF OIL PRICE INCREASES,
FALLING DEMAND HAS INCREASED THE SURPLUS EVEN FURTHER,
DESPITE MASSIVE SCRAPPING OF OLDER CAPACITY. ALTHOUGH
CAPACITY FELL BY 8.6 PERCENT, AN 11.5 PERCENT DROP IN
DEMAND HAS LEFT THE INDUSTRY WITH 20 MILLION BARRELS/DAY
OF SURPLUS CAPACITY.