Shifts in Margins
Note: 3-2-1- spread assumes 3 barrels of crude oil produce 2 barrels of gasoline and 1 barrel of distillate.
Source: Bloomberg spot prices Gulf Coast conventional gasoline, No. 2 heating oil, WTI
SLast, margins also increased in 2004.  This graph shows a surrogate for refiners gross margin.  It simply measures what price refiners received for gasoline and distillate fuels compared to the price they paid for crude oil.

SDuring the 1990’s refining was not a particularly good business in which to invest.  Actual financial margins and returns were low.
–Many large integrated companies reduced their refining assets, choosing to be net purchasers of product and putting their investment dollars in places where they could earn a higher return.
–Some independent  refiners (those without upstream assets), however, chose to grow, both by purchasing assets from integrated companies and expanding capacity in their existing facilities.

SSince 2000, the petroleum market has tightened, and with the exception of 2002, returns were better than in the 1990’s.  This is leading some refiners to see a better financial future than previously.

SHowever, there is much uncertainty about the future.  As this graph illustrates, the increase in spreads came as a result of price volatility rather than smoothly.