[UncoveringTruths]

$this->bbcode_second_pass_quote('', 'S')an Antonio-based refiner Tesoro Corp.'s earnings took a hit in the third quarter, as the company wasn't able to raise fuel prices when it had to pay much more for crude oil to make the fuel it sells.

Hedging losses also were a factor in the company's lower income.
The company's net income fell more than 80 percent to $47 million, or 34 cents a share, compared to $274 million, or $1.96 a share, for the quarter that ended Sept. 30.

Tesoro said that refining margins -- the difference between what it pays for its feedstock and what its products sell for -- were $9.09 per barrel in the quarter, $6.16 below refining margins in the third quarter of last year.

[pup55]

http://peakoil.com/fortopic33206.html

The second example in a week of this.

$9.09 per barrel is 21 cents per gallon.

$6.16 is about 15 cents per gallon, so the margins were about 36 cents earlier this year.

Also, we know that 15 cents was 80% of their profits, so 100% of their profits would be .1875, so their break even point is about 17 or 18 cents, if my calculation is right.

So, if the refining margin goes down another 3 or 4 cents, they will also stop producing unleaded.

So at 92 per barrel crude oil, and 2.34 for RBOB today's refinery margin is .14 per gallon, or about $6.28 per barrel. So, these guys just are not going to be excited about coming in to the office tomorrow morning.

The situation will not go on like this much longer.

[lawnchair]

Fascinating. Tesoro has the major refinery in the Dakotas (Mandan ND). There have been actual lingering shortages of diesel and petrol in the region. For whatever reason (politics?) they haven't raised prices as much as I would think they could have. That won't continue.

[Eli]

This is interesting prices at the pump do not reflect what is going on with oil and we have the Chinese running short of oil because of price controls.

I wonder if there isn't a lot of that going on over here in the USA.

[shortonoil]

Eli said:

$this->bbcode_second_pass_quote('', 'T')his is interesting prices at the pump do not reflect what is going on with oil and we have the Chinese running short of oil because of price controls. I wonder if there isn't a lot of that going on over here in the USA.

[oilluber]

$this->bbcode_second_pass_quote('pup55', 'h')ttp://peakoil.com/fortopic33206.html

The second example in a week of this.

$9.09 per barrel is 21 cents per gallon.

$6.16 is about 15 cents per gallon, so the margins were about 36 cents earlier this year.

Also, we know that 15 cents was 80% of their profits, so 100% of their profits would be .1875, so their break even point is about 17 or 18 cents, if my calculation is right.

So, if the refining margin goes down another 3 or 4 cents, they will also stop producing unleaded.

So at 92 per barrel crude oil, and 2.34 for RBOB today's refinery margin is .14 per gallon, or about $6.28 per barrel. So, these guys just are not going to be excited about coming in to the office tomorrow morning.

The situation will not go on like this much longer.

[pup55]

Here are a couple of graphs for you. The first one is just the refinery margin, since 2004, compared to refinery utilization of the same week. You can see the two episodes of hurricane destruction, the one in 2004, Ivan, was actually quite serious. We all know what happened in 2005.

But you can see, there is only a rough correlation between refinery margin and factory utilization.

The second graph is just the same data as the first graph, only the refinery utilization is shifted 7 weeks to the left. You can see, all the maximum and minimum points, with the exception of the hurricane damage periods, line up almost perfectly.

I could probably go back and do some calculation or let MS-solver tell me exactly how long the lag is.

But, for the purposes of this exercise, suffice it to say that it looks like it takes about 7 weeks for any pricing maximum or minimum for the refiners to get their act together and do what the market is telling them to do. Hard telling why this lag is. Maybe they are scheduling their units on this kind of a time frame, maybe there is some other reason. These are big, complicated pieces of equipment, so I guess you cannot just flip a switch and walk away.

Based on this, I am ready to say that refinery utilization will actually drop for another several weeks, until awhile after the picking up of the margins. In fact, we should be able to calculate the approximate refinery utilization for the next several weeks based on the already existing refinery margin data.

Stupidly, there is probably some young engineer on the night shift of one of these refineries who knows this data, and also knows that there is a huge financial fattening up available to the refiner that anticipates this price increase and has a lot of inventory on hand to sell at just the moment of maximum pricing. But it does not seem to happen that way for some reason. Probably the reason is fear on the part of the management that they will be producing and sending product to inventory with expensive crude oil. I guess it is just human nature, and it takes about 7 weeks for someone to capitulate and finally get the message.

I am ready to prognosticate that the refinery utilization will bottom out at about 83.5% the week of December 7th. The refinery margin minimum was about 12 cents last week, and is 14 this week. Add 7 weeks to last week.

By then, however, the refinery margins will have turned around and be back in the 20-30 range. I am still not sure on exactly how this will happen, by some combination of crude oil price decrease, or gas price increase. With Thanksgiving coming up in three weeks, I am thinking get ready to pay more for gas.

Also, conceptually, the refinery margins could continue to go down next week, making last week a false signal. I cannot tell for sure yet.

The frequent viewers of PO.com are hereby treated to a little advance notice of the news story several weeks in advance, to make whatever preparations are needed.

Warning: I am just some guy on the internet. This post is for entertainment purposes only. Anyone who burns down their garage because they are keeping some quantity of gasoline in there on the basis of this post is on his or her own from a liability standpoint.

[Mechler]

Pup,

All caveats aside, do you think now is a good time to invest in the refining sector? I read your other thread, did my own research, and it looks like refining margins have bottomed. Am I reading this wrong?

Thanks,

Mech

[pup55]

$this->bbcode_second_pass_quote('', 'A')ll caveats aside

[lawnchair]

pup,

I tend not to believe there is any rationality to refinery utilization as a percent. Any day you aren't producing as fast as you can, you're still paying depreciation and taxes on the plant and salaries to the employees. Profit per gallon be damned, as long as margins aren't negative, they're better than losing money. Utilization is somewhat cyclical in that scheduled maintenance is pushed to the shoulder seasons (although there appears to be less 'driving season' and 'shoulder season' anymore... just a gaping maw of consumption slowly shrinking product stockpiles).

[pup55]

$this->bbcode_second_pass_quote('', 'I') tend not to believe there is any rationality to refinery utilization as a percent

[DantesPeak]

$this->bbcode_second_pass_quote('shortonoil', '[')b]Eli said:

$this->bbcode_second_pass_quote('', 'T')his is interesting prices at the pump do not reflect what is going on with oil and we have the Chinese running short of oil because of price controls. I wonder if there isn't a lot of that going on over here in the USA.

[pup55]

Update:

With today's increase to 95.96 in crude oil, and increase of nearly 10 cents per gallon in unleaded, the margin has improved to .1559 per gallon, or $6.55 per barrel.

We are still about 10 cents from this being respectable, and about 14 cents from the average of the last couple of years.

Ironically, any increase in unleaded will send even more people into the market to look for crude.

[Starvid]

-I-

[Starvid]

$this->bbcode_second_pass_quote('pup55', '[')There is one other factor, which is the two giant refineries in Texas City and Whiting Indiana that are running at greatly below capacity, as they have been for awhile.

[pup55]

Tesoro

$this->bbcode_second_pass_quote('', 'I')ndependent western U.S. refiner Tesoro Corp (TSO.N: Quote, Profile, Research) said throughput at its refineries in the fourth quarter should run between 620,000 and 650,000 barrels per day (bpd).

Tesoro's seven refineries have a combined throughput of 660,000 bpd

[pup55]

$this->bbcode_second_pass_quote('', ' ')HOUSTON -(Dow Jones)- Chevron Corp.'s (CVX) net profit plunged by 24% in the third quarter on falling refining margins, particularly at its West Coast operations.

[DantesPeak]

Well, we have a refiner losing money. This should go into the “are refiners gouging consumers debate”.

[oilluber]

$this->bbcode_second_pass_quote('DantesPeak', 'W')ell, we have a refiner losing money. This should go into the “are refiners gouging consumers debate”.

[pup55]

VLO Via Yahoo

$this->bbcode_second_pass_quote('', 'V')alero Reports Its Profit Fell 21 Pct in 3Q, but Still Beats Expectations, Shares Rise


SAN ANTONIO (AP) -- Valero Energy Corp., the nation's largest independent oil refiner, said Tuesday its third-quarter profit dropped almost 21 percent from a year earlier.
The company had warned earlier that lower margins would hurt its results for the July-September period, and the results came in above adjusted Wall Street expectations.