|SGiven the close relationship in 2004
between margins, price differentials and crude oil price, the outlook for
crude oil markets is key to determining where margins and differentials may
go from here.
|SIn the short run, higher crude oil prices
may last for at least two years, based on EIA’s outlook for the crude oil
|SAlso note that differentials are not
separable from margins. Part of
the improvement in U.S. margins stemmed from
many U.S. refiners’ ability to process heavy sour crude oil into light
|SBut the longer term picture is not as
clear. Are the low margins of the
1990’s a thing of the past? The longer
term will be affected by industry’s reaction to 2004 and by how different
world regions will evolve.
|–While strong demand growth may continue in
China, India and other developing areas, Europe and the U.S. may evolve
differently. Both price and policy can
affect these growth patterns.
|–While fuel specification changes played less
of a role in this year’s prices than in previous years, the future still
holds more changes, such as sulfur content in products like residual fuel,
which will affect investment decisions.
|SIn general, refiners will be facing decisions
on not only increased throughputs, but also on gasoline vs. diesel product
balance, changes in bottom-of-the-barrel processing, and continued product
quality changes across the full product array.