Refiners Rake It In

What's most galling is there is no real reason for the recent gas price spike. I guess having oil men running the country is not so good for the rest of us.

Refiners Cash In on High Gasoline Prices -
Record gasoline prices are changing the equation of the refining business, generating unprecedented profits for the companies that transform crude oil into fuel.

For every barrel of oil they use to make gasoline, refiners are pocketing more than $30 in profit before taxes and other expenses. That is the most they have reaped per barrel since Hurricane Katrina in 2005. The major producers of gasoline in the U.S. earned about $10 billion from their refining operations domestically and abroad in the first quarter, up 50% from a year earlier.
But crude oil is still 16% below its nominal high of $77.03 a barrel reached last year, underscoring a shift in the oil industry after more than three years of flush profits. Rising demand and prices fattened the bottom lines of companies across the industry. But gasoline's current run-up is mainly boosting profits for refinery operators, while the business of pumping oil out of the ground has seen its profits plateau or fall a bit.

Refiners have been on a roller coaster since hurricanes slammed into the nation's refining belt along the Gulf of Mexico in 2005. Gasoline prices spiked above $3 a gallon. That led to a rise in what the industry calls the refining margin, or the difference between the price refiners pay for oil and the prices their fuels fetch.

Seriously, the real change is that refiners realized undercapacity serves to best fatten profits. The Enron-California lesson again. Or OPEC, or TickleMe Elmo or 16th century tulips in Holland, or whatever example you want to use.

For decades, there was too much refining capacity in the U.S., margins were crummy and many companies were closing or selling off refineries. In 1986, refiners made little more than $2 for every barrel they processed. “We used to commission studies to get rid of the refineries,” says Fadel Gheit, who formerly worked at Mobil, now part of Exxon Mobil Corp., and is now senior energy analyst of Oppenheimer & Co. “We wanted to give them away.”

Consolidators such as Valero acquired refineries on the cheap in the 1990s. The extra capacity disappeared, and when energy prices soared in recent years, so did refining margins.

As a consumer, our best interests would be to: reduce automobile use (bikes, public transit), and have more fuel-efficient cars (hybrids, et al). Or just hold your breath until 2008, or the Rapture, whichever comes first.

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This page contains a single entry by Seth A. published on May 18, 2007 10:40 AM.

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