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Refining margins watch (was Tesoro)

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Re: Refining margins watch (was Tesoro)

Unread postby pup55 » Fri 28 Mar 2008, 11:46:51

$this->bbcode_second_pass_quote('', 'C')rude Oil 105.78
HO 3.1082
RBOB 2.7038
Gap -0.4044
Ref Margin 17.4609 $/bbl
Ref Margin 0.4157 Cents/Gal


We are back up over 17.
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Re: Refining margins watch (was Tesoro)

Unread postby pup55 » Tue 01 Apr 2008, 12:46:21

$this->bbcode_second_pass_quote('', 'C')rude Oil 101.38
HO 2.8903
RBOB 2.6381
Gap -0.2522
Ref Margin 15.4579 $/bbl
Ref Margin 0.3680 Cents/Gal


With the expiration of the April contracts, and rolling out into May, the heating oil price did its long-awaited springtime correction, thus decreasing the poor refiners' paycheck back to under $16.

Note that the gap between unleaded and heating oil has dropped to only .25, which is about half of what it was a week or so ago.

$this->bbcode_second_pass_quote('', 'W')ASHINGTON (AP) -- Oil refiner Tesoro Corp. was awarded a contract worth up to $49 million from the Defense Logistics Agency to supply jet fuel, the Defense Department said late Friday.


When all else fails, the government will bail you out.
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Re: Refining margins watch (was Tesoro)

Unread postby pup55 » Fri 04 Apr 2008, 13:15:01

$this->bbcode_second_pass_quote('', 'C')rude Oil 105.34
HO 2.9819
RBOB 2.7188
Gap -0.2631
Ref Margin 15.1482 $/bbl
Ref Margin 0.3607 Cents/Gal


Still no increase in refinery margins. Based on this, I am thinking the managers and the administrative assistants will just go down to Padre for spring break, rather than run the refiner this week. Get out the big wash tub full of ice and corona, maybe grill some steaks, wait it out.

Refiners are being beaten down badly today. Even FTO who is using the much lower cost feedstocks is down.
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Re: Refining margins watch (was Tesoro)

Unread postby pup55 » Mon 14 Apr 2008, 10:55:47

$this->bbcode_second_pass_quote('', 'C')rude Oil 110.74
HO 3.1900
RBOB 2.8091
Gap -0.3809
Ref Margin 16.3609 $/bbl
Ref Margin 0.3895 Cents/Gal


Long time no check.

We are up over $16 , which is back into the respectable range.

I would think they would be pretty happy with refinery margins around $20. For that to happen, crude oil would have to be about $105.

Or the other way to look at it is, unleaded would have to be about $3.00 wholesale at the current crude price.
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Re: Refining margins watch (was Tesoro)

Unread postby Mechler » Wed 16 Apr 2008, 17:35:07

pup,

If inventory reports continue like this it must be bad news for the refiners, right? I mean, if we're drawing on crude supplies with refinery utilization so low, what's going to happen when they start cranking things up? Larger draws meaning that crude prices will march up right along side RBOB prices.

Is my analysis flawed? What will crack first - refining margins, RBOB MOLs, crude MOLs???

Whatever the answer, seems like a lot of bad news for the US economy. On the other hand, maybe the last two weeks were just anomalous in regards to lower imports :cry:

Anyway, I'm hoping something turns around for the refiners.
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Re: Refining margins watch (was Tesoro)

Unread postby pup55 » Thu 17 Apr 2008, 09:27:54

$this->bbcode_second_pass_quote('', 'i')t must be bad news for the refiners


We are in one of those times right now where something has to give, the situation cannot continue like it is.

If the refiners stay shut down, the fuel supplies will get low, and the price will go up.

If the refiners start up, at the current level of imports, the crude oil inventory will go down, and the price of crude locally will go up. The refiners are not running a charity. They will not produce the fuel if they do not think they can get money for it.

So I think you can see what will happen in either case.

I am still not at all convinced that demand will drop enough to cause a dent in this situation. We have discussed this in a variety of other threads. We still gotta have the gas. We all live in the suburbs now. We can't get anywhere without driving, even if we get laid off.

$this->bbcode_second_pass_quote('', 'C')rude Oil 114.66
HO 3.2688
RBOB 2.9499
Gap -0.3189
Ref Margin 16.8703 $/bbl
Ref Margin 0.4017 Cents/Gal


Note that the unleaded/HO gap is shrinking, finally.
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Re: Refining margins watch (was Tesoro)

Unread postby pup55 » Tue 22 Apr 2008, 16:09:21

$this->bbcode_second_pass_quote('', 'C')rude Oil 119.5
HO 3.3157
RBOB 3.0152
Gap -0.3005
Ref Margin 14.3324 $/bbl
Ref Margin 0.3412 Cents/Gal


Refining margins are down almost $2 per barrel, as of now. The refiners are getting beat up in the marketplace today too.

You know what that means: The boys are going to take Friday off from now on and play golf instead of running the refiners.

Right now, unleaded should be about 30 cents higher, and I think they have another 30 cents to go before July 4. Prediction: $3.40 wholesale RBOB and $4.00 retail average nationwide before July 4.
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Re: Refining margins watch (was Tesoro)

Unread postby memmel » Wed 23 Apr 2008, 02:59:13

$this->bbcode_second_pass_quote('pup55', '')$this->bbcode_second_pass_quote('', 'i')t must be bad news for the refiners


We are in one of those times right now where something has to give, the situation cannot continue like it is.

If the refiners stay shut down, the fuel supplies will get low, and the price will go up.

If the refiners start up, at the current level of imports, the crude oil inventory will go down, and the price of crude locally will go up. The refiners are not running a charity. They will not produce the fuel if they do not think they can get money for it.

So I think you can see what will happen in either case.

I am still not at all convinced that demand will drop enough to cause a dent in this situation. We have discussed this in a variety of other threads. We still gotta have the gas. We all live in the suburbs now. We can't get anywhere without driving, even if we get laid off.

$this->bbcode_second_pass_quote('', 'C')rude Oil 114.66
HO 3.2688
RBOB 2.9499
Gap -0.3189
Ref Margin 16.8703 $/bbl
Ref Margin 0.4017 Cents/Gal


Note that the unleaded/HO gap is shrinking, finally.


So Pup55 in my esteemed opinion either way the the shit hits the fan this summer. The only way out is a timely flood of cheap imported gasoline. What a lot of people are not realizing is we are setting our selves up for a big fall by playing this game. By waiting till its too late to buy oil our suppliers overseas can only supply gasoline using the current crude prices which will be sky high
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Re: Refining margins watch (was Tesoro)

Unread postby pup55 » Wed 23 Apr 2008, 07:28:35

$this->bbcode_second_pass_quote('', 'T')he only way out is a timely flood of cheap imported gasoline.


During a normal summer, our current refinery capacity is not enough to satisfy all of the demand, even if running full out.

We are now running at 82% or something, thanks to the current pricing and margin situation. So both the increase in production plus imports will both have to happen.

We have about a 20 million barrel inventory cushion at the moment, and we are drawing 3.5 million barrels per week, so the situation will have to shake out in the next month or six weeks, which should put us into mid-June at the latest.

Both imports (for which we will have to outbid the Chinese) and refinery increases (for which we will have to pay so that the refiners make money) will have to happen.

If the demand decreases 10%, something like 1 mbpd, then maybe we can avoid the problem, but demand has only decreased 1%, and maybe not even that, if you look deeper into the figures like we did the other day. So, the current situation is not sustainable, and the easiest and most logical way out of it will be for people to pay more for gas.

Also, like we were saying the other day in the inventory thread, even if the refiners do bite the bullet and decide to increase production, there then becomes an issue with crude oil supply, because we are not importing enough of that either. We have a little larger inventory cushion in crude oil, but potentially could drain out a lot faster.

Plus we have not entered hurricane season yet, which starts June 1.

So, more drama on the horizon.
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Re: Refining margins watch (was Tesoro)

Unread postby qwanta » Wed 23 Apr 2008, 10:11:58

This could get ugly for the share prices!

VLO reports earnings on 4/29
SUN 5/1
TSO 5/8
$this->bbcode_second_pass_quote('', ' ')The gap between the price of crude and the price of gasoline and other refined products has pressured profit margins at refiners Valero Corp. (VLO), Tesoro Corp. (TSO) and Sunoco Inc. (SUN), among others.

Earnings from downstream operations including refining slumped 62% for a group of 10 major U.S. oil companies in the fourth quarter. At the same time, these companies processed roughly the same volume of oil, says the Energy Department's Energy Information Administration.

The first quarter is likely to look even worse. Earnings for the three dedicated refiners in the S&P 500 Index (SPX) are anticipated to tumble 94% to just under $67 million from $1.2 billion a year ago, according to Thomson Financial.

money.cnn.com

I suspect the VLO call on Tuesday could trigger a sell-off in the sector.
$this->bbcode_second_pass_quote('', 'V')alero Energy Corp. released guidance Monday indicating that the oil refiner will report first quarter 2008 net income in the 10 to 35 cent per share range.

San Antonio-based Valero (NYSE: VLO) will report full earnings on April 29.

During the first quarter of 2007, Valero reported earnings per share of $1.86 per share.
www.bizjournals.com
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Re: Refining margins watch (was Tesoro)

Unread postby pup55 » Wed 23 Apr 2008, 13:11:24

Yep. The little model we have is calibrated for about where TSO and VLO's refinery margins are, and last year at this time they were abnormally good. Unleaded had raced far above crude oil for pricing.

This year, not so much yet. Give it a couple of weeks though and it might turn around a little bit.
$this->bbcode_second_pass_quote('', '
')Crude Oil 117.49
HO 3.2924
RBOB 3.0196
Gap -0.2728
Ref Margin 15.8640 $/bbl
Ref Margin 0.3777 Cents/Gal


A little better this morning, but this still needs to be about 25 or 30 before anyone gets excited. This translates to about another 30 cents on the gas price.
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Re: Refining margins watch (was Tesoro)

Unread postby misterno » Wed 23 Apr 2008, 21:40:08

pup55

Would you please care to explain how you calculate all these below?


Gap -0.2728
Ref Margin 15.8640 $/bbl
Ref Margin 0.3777 Cents/Gal

Thanks in advance
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Re: Refining margins watch (was Tesoro)

Unread postby pup55 » Wed 23 Apr 2008, 23:33:40

$this->bbcode_second_pass_quote('', 'G')ap -0.2728


This is just the unleaded price minus the heating oil price. Somewhere in this thread I posted a historical chart of this to the effect that for a long time, it was hardly ever negative, which is to say, the unleaded price was almost always higher. Not now, though.

Ref Margin 15.8640 $/bbl

I take the heating oil price in $/gal times 42 to convert to $/barrel, and multiply by .43.

Then, the unleaded price in $/gal times 42 to convert to $/bbl, and then multiply by .57

Then add the two products above together, which is the weighted average price of the products. Then, subtract the crude oil price from this sum, to get the refining margin, in $/bbl. It's the profit that the refiners make on an average product mix.

Ref Margin 0.3777 Cents/Gal
This is just the above, divided by 42 again, to get margin in cents per gallon.


57/43 is approximately the production ratio of unleaded to heating oil for the US refineries. Yes, I am well aware that there are other products, such as propane and jet fuel that come from this mix, but this is just a rough estimate for comparison from week to week. As it turns out, it is actually within a dollar or so of VLO and TSO's actual refinery margin under normal circumstances, so close enough for the purposes of some forum on the internet.

Of course, the actual refinery margin has to be computed on a unit-by-unit basis, using the actual feedstock price (which might not be the same as the WTI price) and the actual product mix that the unit is producing. So each of these companies knows this calculation, and it's a little different for each refinery.

That's why FTO is able to have $20 refinery margins at the same time VLO has only $12 because they can buy cheaper feedstock and can refine it into California gas which has an even higher selling price.
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Re: Refining margins watch (was Tesoro)

Unread postby pup55 » Tue 29 Apr 2008, 09:53:21

Crude Oil 117.1
HO 3.2845
RBOB 2.998
Gap -0.2865
Ref Margin 15.6748 $/bbl
Ref Margin 0.3732 Cents/Gal


Update: we are back around 16, which could be worse. I think I can make a little model that projects the TSO share price based on this number. I bet it would be fairly close.

The refiners had a pretty good day yesterday, mostly up around 1%.
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Re: Refining margins watch (was Tesoro)

Unread postby pup55 » Thu 01 May 2008, 10:46:23

Crude Oil 112.78
HO 3.1474
RBOB 2.8928
Gap -0.2546
Ref Margin 14.8127 $/bbl
Ref Margin 0.3527 Cents/Gal

This little price correction has really affected the products a lot. HO down almost 14 cents in a few days.

It did not help the refining margins though.
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Re: Refining margins watch (was Tesoro)

Unread postby joewp » Thu 01 May 2008, 17:16:04

So hat do you think? Since we didn't have any noticeable demand destruction as prices were rising, if these new prices hold we could see 15-25 cents off the pump price. Think we'll see an increase in gasoline usage and major stock draws? After all, this drawdown in price isn't going to make refiners open the spigots too much.
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Re: Refining margins watch (was Tesoro)

Unread postby pup55 » Mon 05 May 2008, 09:59:09

$this->bbcode_second_pass_quote('', 'C')rude Oil 116.79
HO 3.2203
RBOB 2.9631
Gap -0.2572
Ref Margin 13.8176 $/bbl
Ref Margin 0.3290 Cents/Gal


We are still only at about 14, so we are still not at a situation where the refiners will bend over backwards to produce any extra unleaded.

Despite an occasional news story to the contrary, the products supplied number is still strong every week, as is that "demand" calculation that we make.

I think Friday's market action, which was a big rally in crude oil plus all of the products, is pretty typical of what is going to happen between now and July. Crude oil will respond to news stories, hurricanes, and whatever else. Some days the profit takers will take over for a day or two, and then there will be short covering rallys that ratchet the whole thing higher. When demand gets strong in another couple of weeks, the products will catch up. The fact that it has taken so long for this to happen has caused me to have some doubt, but I still think that is the more likely scenario.
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Re: Refining margins watch (was Tesoro)

Unread postby pup55 » Tue 06 May 2008, 11:44:22

$this->bbcode_second_pass_quote('', 'C')rude Oil 121.77
HO 3.3400
RBOB 3.11
Gap -0.2300
Ref Margin 14.3562 $/bbl
Ref Margin 0.3418 Cents/Gal


The products are all up strongly at the moment. Margins have caught up a little, and note that the "gap" has shrunk to 23 cents. A On the 23rd, this was in the 31 range, so this flip may finally be happening.

$3.11 wholesale is about $3.71 national average retail, so we are now spitting distance from $4 nationwide.

With the exception of FTO, the most efficient, the refiners are being beaten up this morning.
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Re: Refining margins watch (was Tesoro)

Unread postby qwanta » Tue 06 May 2008, 12:29:55

Thought I'd post a couple Q&A's from the Financial Sense Newshour radio show. These from 3/15/08.

FSN 3/15/2008
$this->bbcode_second_pass_quote('', '[')b]Q: Jim, what do you think about refiners. I'm thinking companies like Valero, Tesoro. In the long term, will they continue to get squeezed by higher oil prices and also the US slowdown and decreased consumer spending, or do you think they are a good way to participate in this energy bull market? Thanks.

JIM: Unfortunately, the one thing that has hit the refiners is the crack spread has narrowed considerably, so the profit margins have dropped. These crack spreads are going to have to widen again, and that's why I don't think we've seen, as consumers, the full effect of higher gasoline prices because eventually, they are going to have to pass on the cost in terms of their raw input –the oil – that they buy, otherwise they go out of business.

And we can't afford to have these guys start losing massive amounts of money because we don't even have enough refinery capacity to refine what it is we consume. If you're a long term investor there are very few refiners. I'd take a look at – I'm not going to mention the names, but take a look at some of the companies that are expanding their capacity to handle heavier crude oil because that's a lot of what we're going to be getting from the Middle East and Saudi Arabia, also from the tar sands in Canada and also the ability to expand diesel fuel because we're importing a lot of diesel because we don't have the capacity to refine enough of it here. But if you're going to be in the sector, you're going to have to be a long term investor because right now, the profit margins have narrowed as the crack spread has narrowed.

$this->bbcode_second_pass_quote('', '[')b]Q: I have a couple of quick questions for you guys. The first is: US oil refiners, is this a good time to be owning these shares. Should I be accumulating during these blow offs as we’ve seen over the past week with companies like Valero, Tesoro, Conoco? (...)

JIM: You know, trying to buy oil refineries, I would start nibbling on them. The crack spread has narrowed right now. But if you’re going to be in oil refiners it may be a while before that spread widens. So you’re going to have to take a longer term view on things.
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Re: Refining margins watch (was Tesoro)

Unread postby Starvid » Tue 06 May 2008, 12:55:19

Why are crack spreads so small? Didn't we have a lack of refining capacity crisis just a few years ago, which the pundits paradoxically blamed high oil prices on?
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