That's the question of the day.
The traders are under the mistaken impression that demand has backed off slightly, and all is well. I personally think that one of these days there is going to be some surprise in the marketplace and then TSHTF.
The above article is dead on, as I see it. The unleaded price is about 20 to 25 cents too low at the current level of crude oil pricing, and the only reason is that we have not seen the demand yet because of the seasonality.
There is one thing lurking in the background, which is that the giant refineries Texas City and Whiting, which have been at low throughput for more than a year, are reportedly now operable. This should give the market about .2 mbpd over and above what was going on the last couple of years as far as peak capacity. However, thus far, no one is running the refineries because it is a non-issue.
It will be interesting to see if the inventory gets down to about 200 million barrels what the reaction will be. It's at about 211 now, so maybe another three or four weeks before this happens.
PeakOil is You
Refining margins watch (was Tesoro)
Re: Refining margins watch (was Tesoro)
by pup55 » Tue 06 May 2008, 15:42:09
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pup55 - Light Sweet Crude
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Re: Refining margins watch (was Tesoro)
by TheDude » Wed 07 May 2008, 02:41:42
$this->bbcode_second_pass_quote('pup55', 'I')t will be interesting to see if the inventory gets down to about 200 million barrels what the reaction will be. It's at about 211 now, so maybe another three or four weeks before this happens.
Looks typical to me.
Weekly%20Gasoline%20Stock%20Chart.jpg)
Also looks like we're going bullish on inventory builds.
Cogito, ergo non satis bibivi
And let me tell you something: I dig your work.
And let me tell you something: I dig your work.
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Re: Refining margins watch (was Tesoro)
by pup55 » Wed 07 May 2008, 14:56:23
$this->bbcode_second_pass_quote('', 'G')as is not profitable, and the machines that refine crude oil into retail gasoline are fatiguing, said Schork. Even if a refiner had economic incentive to make gasoline, refineries simply can't maximize output.
CNNMoney
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pup55 - Light Sweet Crude
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Re: Refining margins watch (was Tesoro)
by pup55 » Fri 09 May 2008, 10:32:52
$this->bbcode_second_pass_quote('', 'C')rude Oil 125.75
HO 3.5948
RBOB 3.181
Gap -0.4138
Ref Margin 17.7584 $/bbl
Ref Margin 0.4228 Cents/Gal
HO 3.5948
RBOB 3.181
Gap -0.4138
Ref Margin 17.7584 $/bbl
Ref Margin 0.4228 Cents/Gal
Looks like the products have caught up a little bit in the last few days. I will have to check back on this thread but I am thinking this is the highest the margins have been since we have started tracking it carefully.
Furthermore the gap between heating oil and RBOB has gotten much bigger, which says that most of the action has been in distillates, and that at some point (probably soon) the RBOB will come from behind and catch up a little. You can call this a prediction if you want.
When RBOB hits 3.20 today or tomorrow, that will equate to a national retail price of $3.85 or so, a few days after that, but I think it could easily go 20 or 30 cents higher, and maybe even more like 50, if the normal balance between RBOB and HO returns.
Too soon to tell this morning if the refiners are feeling some of this love as it applies to their stock prices. Energy Service, diversified energy, and natural gas all treated us nice yesterday.
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Re: Refining margins watch (was Tesoro)
by qwanta » Sat 10 May 2008, 19:48:58
$this->bbcode_second_pass_quote('', '[')b]Oil Refiners: Cheap for a Reason
(...)
From the start of 2004 through the end of 2007, the gap between the cost of crude and the price of refined products was wide. During that period, the gap -- called a "crack spread" in the trade -- peaked at $28 a barrel in May 2007 for the spread between Brent crude and unleaded gasoline. In some locations, the spread reached $40. The normal historical spread is about $20. Shares of Tesoro soared nearly nine-fold from the start of 2004 through October 2007.
But starting in the spring of 2007 the crack spread started to narrow. It disappeared altogether this past winter, before recovering in March. Valero says its spread averaged $8.50 in the first quarter of 2008, a weak showing.
Refiners bear heavy maintenance costs and big debt loads and spend the billions to buy or build capacity, so slim spreads mean that little money sinks to the bottom line. If you're a stockholder in a refinery (as opposed to a company that both produces oil and refines and sells it, such as ExxonMobil or BP), it doesn't matter whether a gallon of gas retails for $1.50 or $4.00. What's critical is the cost of goods sold (crude oil and additives) in comparison with the market price of the refined products and the conditions that determine whether and when the spread widens or narrows.
Crack spreads are so small now because of the unprecedented speed with which crude prices have leapt. This has prompted some refiners to rush to buy oil on the spot market to get supplies under control before prices go even higher. That helps contribute to -- you guessed it -- still-higher crude prices.
(...)
The question now is whether the stock and others in the group are cheap enough to buy.
The answer: Not until crude oil prices ratchet down. Refiners' gross margins will be slim and company earnings nonexistent until their biggest expense, crude oil, starts falling. Then you'll see earnings bump up as crack spreads widen before prices of finished products retreat. At that point, the stocks should jump.
(...)
Don't expect the oil giants to buy out the independent refiners. A few years ago, when gasoline prices first crossed $2 a gallon, executives from Big Oil said flatly that it made no sense for them to build refineries because returns wouldn't be sufficient. And that was when crack spreads were wide.
Refining stocks should rebound from their 52-week lows in coming months because summer gasoline blends required in some states are more profitable than fuel sold the rest of the year. But the real possibility that Americans will cut back on driving is a potential negative.
Tesoro and some of the other refiners have planned to address profit weakness by retrofitting facilities so that they can process cheaper grades of "sour" crude, which can cost $20 a barrel less than the light sweet crude that's most easily refined into motor fuels. But these ventures require enormous capital expenditures and a lot of time, so they don't promise any quick fixes for shareholders.
When the cycle turns, you'll have plenty of time to get in and make good money. But for now, stick to the other parts of the oil and gas industry.
(...)
From the start of 2004 through the end of 2007, the gap between the cost of crude and the price of refined products was wide. During that period, the gap -- called a "crack spread" in the trade -- peaked at $28 a barrel in May 2007 for the spread between Brent crude and unleaded gasoline. In some locations, the spread reached $40. The normal historical spread is about $20. Shares of Tesoro soared nearly nine-fold from the start of 2004 through October 2007.
But starting in the spring of 2007 the crack spread started to narrow. It disappeared altogether this past winter, before recovering in March. Valero says its spread averaged $8.50 in the first quarter of 2008, a weak showing.
Refiners bear heavy maintenance costs and big debt loads and spend the billions to buy or build capacity, so slim spreads mean that little money sinks to the bottom line. If you're a stockholder in a refinery (as opposed to a company that both produces oil and refines and sells it, such as ExxonMobil or BP), it doesn't matter whether a gallon of gas retails for $1.50 or $4.00. What's critical is the cost of goods sold (crude oil and additives) in comparison with the market price of the refined products and the conditions that determine whether and when the spread widens or narrows.
Crack spreads are so small now because of the unprecedented speed with which crude prices have leapt. This has prompted some refiners to rush to buy oil on the spot market to get supplies under control before prices go even higher. That helps contribute to -- you guessed it -- still-higher crude prices.
(...)
The question now is whether the stock and others in the group are cheap enough to buy.
The answer: Not until crude oil prices ratchet down. Refiners' gross margins will be slim and company earnings nonexistent until their biggest expense, crude oil, starts falling. Then you'll see earnings bump up as crack spreads widen before prices of finished products retreat. At that point, the stocks should jump.
(...)
Don't expect the oil giants to buy out the independent refiners. A few years ago, when gasoline prices first crossed $2 a gallon, executives from Big Oil said flatly that it made no sense for them to build refineries because returns wouldn't be sufficient. And that was when crack spreads were wide.
Refining stocks should rebound from their 52-week lows in coming months because summer gasoline blends required in some states are more profitable than fuel sold the rest of the year. But the real possibility that Americans will cut back on driving is a potential negative.
Tesoro and some of the other refiners have planned to address profit weakness by retrofitting facilities so that they can process cheaper grades of "sour" crude, which can cost $20 a barrel less than the light sweet crude that's most easily refined into motor fuels. But these ventures require enormous capital expenditures and a lot of time, so they don't promise any quick fixes for shareholders.
When the cycle turns, you'll have plenty of time to get in and make good money. But for now, stick to the other parts of the oil and gas industry.
http://www.kiplinger.com/columns/picks/archive/2008/pick0509.htm
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