Valero announced that they are shutting their 275,000bpd refinery in Aruba, taking capacity offline after the refinery was unable to overcome a period of sustained losses.

The Aruba plant processes heavy sour crude that had typically been heavily discounted compared to the more sought after sweet crude that is easier to refine. Last August (2008), the discount was near $10 per barrel against sweet crude, but in the last few months the discounts have slowly gone away as more refiners equip their plants to accept sour crude and they lower their use of more expensive sweet crude. Most recently the discount was near $4/bbl and in June it was close to $6/bbl. With the discounts drying up and the cost to refine heavy sour higher than sweet crude, it apparently made no economic sense for Valero to keep the unit open.

Since the refinery is in Aruba, it has the ability to easily ship products to many countries. While the closing is "indefinite", Valero will likely resume production when and if discounts are more attractive on heavy sour crude.

Refiners have been somewhat squeezed as of late as oil rallies to new 2009 highs near $75 while prices for finished products like gasoline remain steady. For refiners to profit, oil would have to be cheaper and gasoline prices would need to be higher.

Other refineries are also at risk in the future, specifically plants that are in remote areas and those that rely on one type of crude. We'll update you if more information becomes available.