|SIn this section, we will explore a different
view of what has been behind the rapid increase in light-heavy crude oil
differentials in 2004. This view
attributes capacity constraints – both distillation and conversion capacity
-- as the main drivers behind the high light-heavy price differences.
|SThis issue is being addressed for two reasons.
|– The first is that from a refiner’s
perspective, understanding the drivers behind the 2004 light-heavy crude
price difference will affect projections of the future behavior of that price
difference – e.g., when will it fall and how much it might fall.
|–The second reason is that consumers and
policymakers are concerned over price effects of strained supply, and these
theories may have placed too much emphasis on the relationship between
refinery constraints and prices in 2004.