CA Energy Problems
There's a nice graph in my local rag that shows the average refining margin in CA over the last few years. It was all over the place from a low of $3 per barrel (gas was $1.35) in Jan. 2000 to a high of $18 per barrel (gas was at $1.85) in Sept. 2000. It reached almost this $18 dollar level in April 1999 after a refinery fire (gas at $1.54).
Refiners raking in profits
Record prices for gasoline sales come even as crude oil prices have
remained steady. But the high margin is unlikely to last.
May 8, 2001
By ANNE C. MULKERN
The Orange County Register
Oil refiners are making record amounts turning crude oil into gasoline.
At a time when gasoline prices are setting records, crude oil prices have remained relatively
steady for several months at about $28 a barrel. The result: higher profits for the refineries.
The oil companies that own the refineries also benefit overall, although company- owned gas
stations are feeling the pinch as they see sales volumes drop.
Nationwide, the amount that refiners receive from gasoline sales, after subtracting the costs of
crude oil, set a new record last month.
In California, that amount - known as the refiner's margin -- is even higher.
A report from investment banking firm Salomon Smith Barney shows California refiners in
late April kept $15.52 of every barrel of crude oil they processed into gasoline. That's 57
percent higher than margins seen in February.
Part of that margin pays for the costs of processing crude oil into gasoline. Out of a $15
margin, about $3 to $4 covers costs, analysts said.
COMMODITIES BUSINESS CYCLICAL, REFINERS SAY
Oil refiners say the business is cyclical, and even though they are making money now, there
have been periods when the business was far less profitable.
Some - such as Arco - were in such a weakened position that they were taken over by larger oil
companies. Arco was bought by BP-Amoco in 1999.
"It's a commodities business,'' said Paul Langland, spokesman for BP-Arco. "Everyone on
both sides suffers occasionally.''
Refining costs also have increased since last year, he said. Many refiners use natural gas,
which last winter cost five to eight times more than a year earlier.
In general, California refiners have seen larger margins than the rest of the nation since 1999,
although California refinery margins also have dipped as low as $3 per barrel in October 1999
and again in January 2000.
The highest margin seen by refiners here came in September 2000, when it hit about $18 per
barrel. That's the same time the state's average gasoline price set a record high unsurpassed
until last week.
HIGH MARGIN MAY DRIVE DOWN PRICES AT PUMP
Analysts said the current high margins probably can't be sustained. In fact, the high margin
could be what drives down gasoline prices.
Oil refiners are increasing production to try to grab extra profits. And oil producers around the
world are sending fuel to the United States, also hoping to cash in.
"Very strong margins in the U.S. have acted as a (magnet), attracting foreign cargoes of
gasoline,'' energy analysts with UBS Warburg said in a recent analysis of oil-company
profitability.
"The supply will increase and pull down prices,'' said Matthew Warburton, analyst with UBS
Warburg in New York.
But for now, refiners can't supply as much fuel as consumers want, even though nationwide
demand is projected to increase only 2 percent this summer over last.
Refineries until recent weeks were not operating at full capacity. Many shut down parts of their
operations to convert from making heating oil to making gasoline.
In California, refineries had to switch from winter to summer fuel in late April, so they didn't
make excess fuel. Overall, they were running at about 86 percent capacity, although that has
been increasing in recent days.
All this comes as demand is poised to jump heading into summer.
Several oil companies have reported record earnings in recent quarters. Arco earnings reported
in January rose eightfold from a year earlier. Exxon Mobil Corp. saw fourth-quarter earnings
up 34 percent.
"Their profits are higher than they've ever been,'' said Will Woods, executive director with the
Automotive Trade Organizations of California, a nonprofit trade group for gas station dealers.
Wood said refiners have a right to make a profit, but that the high margins show there is a lack
of competition in California.
However, the Federal Trade Commission announced Monday that it was ending a three-year
investigation of oil refiners in Arizona, California, Nevada, Oregon, and Washington, and that
it had found no antitrust-law violations. |
