SIf conversion capacity were the limiting factor in the market, refineries with and without such capacity would be running extra barrels of crude oil without benefit of conversion, thereby causing the marginal price of heavy crude oil to be set on the basis of a topping/reforming refinery, rather than a more complex refinery.  That did not seem to be the case in 2004.
	SThe red line compares the product values derived from refineries cracking a light crude oil (Louisiana Light Sweet or LLS) to product values cracked from a heavy crude oil (Mars).  The difference in these product values is then compared to the actual price difference of the two crude oils.  The similarity implies that conversion units were not a major constraint.
		–While Mars crude (25% bottoms and 2% sulfur compared to LLS at 10% bottoms and 0.5% sulfur) is run mainly in U.S. refineries with coking capability, its price is being set on the world market by refineries that don’t have coking capability, since it competes worldwide with comparable crude oils that are being processed in cracking refineries.
		–The net result is that refiners having bottoms upgrading capability in this market will make better margins than those without, and as more refiners add coking worldwide, the narrower the differential will grow.
	SConsider the case If world refiners had 1 million barrels per day more coking capacity (a 25% increase) at the beginning of 2004 than actually existed.
		–About 10% less residual fuel oil would have been produced in the world market, but many refiners still would be producing 20-30% residual fuel.  Lower volumes of residual fuel  would likely improve price, but residual fuel oil prices would still remain well below crude oil prices as this fuel competes with other boiler fuels.  And heavy crude oils would still sell at a large discount to light crude oils.
		–As crude oil prices increased, that residual fuel oil would still have been an anchor in the short run.  Light product prices would have increased the same or even more than the $20-$25 per barrel, while residual prices would only have increased slightly.  The light-heavy crude oil price differential would have increased proportionally.
	SAlthough conversion capacity limits did not seem to be a major factor in the 2004 runup, there is no doubt that many refiners wished they had more bottoms conversion capacity to reduce residual fuel yield in their facilities.