Friday July 13, 1:02 pm Eastern Time
MotleyFool.com - Fool on the Hill
Fool on the Hill: In Search of Cheap Oil
biz.yahoo.com
By Bill Mann
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Just what are refiners?
Oil refiners have never been net margin stories. It is a cutthroat commodity business, with the above-described radical swings. Refining is the "chemistry" part of the process of getting oil out of the ground and getting it to a place and form that can be used. It's the middle of the chain: There's exploration and production, which is the "geology" portion, refining, distribution -- or the "physics" portion -- and marketing, the "voodoo" portion.
When crude oil arrives at the refinery, it is essentially useless. What many people do not realize is that a barrel of oil in no way equals a barrel of gasoline. Actually, different components, or "fractions," are included in a single barrel. These range from super-pure jet fuel and gasoline through naphtha on down to the dirtier bunker fuel and asphalt. A refiner's job is to convert a barrel of crude into as much economically beneficial substance as possible. The process is quite expensive, and the raw material prices are unstable.
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U.S. refinery capacity is capped
What are the chances of the current market conditions remaining in place? In the long term, slim and none. This does not mean, however, that refining is without its positive attributes, particularly in the U.S. Refining is a business that is running up against a ceiling in domestic supply. A combination of limited capital return over the last decade and increasingly strict environmental limitations have conspired to keep new refining capacity from coming on-line: According to industry reports, the chance of new refining capacity being built in the U.S. over the next decade is unlikely. |
