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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: energyplay who wrote (67005)	8/5/2005 2:19:35 PM
From: Elroy Jetson	Read Replies (2) \| Respond to of 74559

We don't have enough production of the light-sweet crude which most refineries can handle. It costs $3 billion to upgrade a $1.5 billion refinery to handle heavy and sour (high sulfur) crudes. Since few want to spend that kind of money, we do not have enough refineries which can handle sour and heavy crudes which the world has in abundance. If a refinery, which can handle heavy and sour crudes, experiences an unplanned interruption, this lost product sometimes has to be supplied from refineries which can use only light sweet crude - this forcing up the price of light sweet crude. So a refinery outage can help push up the price of light sweet crude. But I think this impact is pretty marginal. More multi-billion dollar refinery upgrades will fix this problem, but refinery margins were close to zero for so many decades that few want to make that leap - which will also help to lower refinery profits. Oil tankers are constantly redirected en-route, often multiple times in one voyage. When I worked at Chevron Shipping we received twice daily confidential updates on the new destination and route for every tanker. There is no real loss of time or supply in bringing oil to the market when a tanker gets redirected. Tanker transport speed is either increased or reduced in order to keep the ballet of tankers coming into each port on a steady assembly line. So if some refinery shortages put upward pressure on light-sweet crude prices but most do not, why is it always reported as if it did? In my experience, newspapers almost always present a highly distorted view of reality, in part to make the news sensational, but mostly because reporters don't understand the issue they're reporting. Likewise and surprisingly, most oil traders do not understand the oil business. They just know you should buy crude on news of a refinery outage. Traders are always available to newspaper reporters for comment, as their reported comments can help influence the profitability of their positions. .