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Strategies & Market Trends : Value Investing
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To: Micah Lance who wrote (58135)10/6/2016 7:47:04 PM
From: Spekulatius  Read Replies (1) of 78704
 
Re HFC - why does HFC profit from higher prices? Refining is a spread business, the absolute value of the crude does not matter. As I understand it, the abundance of crude in the mid continent and lack of ability to move it lead to sharply increased spreads for refineries close to resource areas.
The lower prices indirectly hurt the refineries, because it put the breaks in the crude output, so the supply was more balanced and the excess spreads went away. It is not clear to me this the refinery spreads will ever go back to the levels where they have been for the last few years, because the US has now much more pipelines to move the crude for much longer wer cost than before (rails or even trucks).
I think this is one case, where the new normal may look more like the market did 10 years ago than it did 3 years ago. Some of the refineries may be somewhat insulated since they have extensive logistic operations (MPC, PSX -also has a strong petrochemical business).
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