Trends, Cycles, and Kinks


	SThe investment environment for refiners in general had picked up. For much of the past twenty years, the refining industry has experienced low margins and returns.

	SWhile companies were able to reduce their operating costs, competition and overall market conditions brought prices down with operating costs, keeping the net margins low.

	SRefining profits looked to be trending up since 1995, with a few exceptions. Growing demand and shrinking surplus refining capacity during the 2003-2007 time period drove definite improvements. Utilization was high, and even though refined product growth rates were modest, many felt more refining capacity was needed.
		–While not shown in this chart, high margins for a given year frequently came as the result of an event like the hurricanes in 2005.
		–Profitability for the year was the effect of a limited number of high profit months rather than a smooth general increase, which increases the uncertainty in predicting profitability.

	SLight-heavy crude price differences were also expanding at this time, which contributed significantly to profit growth for refiners with the ability to upgrade the heavy crude bottoms. (The growing light-heavy crude price difference is sometimes referred to as the heavy, sour crude oil discount.)

	SOptimism about the future profitability of refining was increasing, and with the cash flow from increasing profits, many refinery expansion and upgrading projects were being planned.