Margin’s Relationship to Crude Price
Source:
Annual Average Bloomberg spot prices
| SWe have seen margins increase in past years as
a result of product market issues, such as a change to a new product
specification. But margins in 2004
likely received a boost from crude oil prices as well. |
|
| SAs crude oil market fundamentals tighten,
product markets also tighten, which results in higher spreads. The movements on this diagram show that,
while spreads and crude oil prices frequently move together, the movements do
not always coincide and vary in proportion, which indicates factors other
than crude oil also affect product markets. |
|
| SThis chart shows a simple 3-2-1 spread
using a light crude oil. But the
increase in light-heavy differentials, which also stems from the increase in
crude oil prices, gave an added margin boost to refiners with upgrading
equipment using heavy sour crude oils.
For example, Thomas O’Malley stated that Premcor achieved an average
$11.10 per barrel gross margin in heavy sour crude oils they processed
compared to a $6.30 per barrel gross margin in light sweet crude oils. (Octane
Week Feb. 21, 2005) |
|
| SWill the long-term path settle at these higher
levels? As this graph shows, if the
crude market balance softens in the longer term, both prices and margins
could decline. |
|