Posted in: Infrastructure,
by Patrick DeHaan on Jan 28, 2010 01:46 PM
If you do some research, it's not hard to see how refiners bottom lines have taken a beating this fall and winter. The concern I have with losses at the refining level doesn't so much concern the money they lose as it does how the losses will impact gasoline prices in the future.
Companies strictly in the refining business are hurt the most- some refineries have been losing millions of dollars per day. The problem comes because supply is ample in much of the country. California (and the West Coast) is about the only area that refiners can turn a profit, and that's simply because California's air standards require a special fuel that costs more and is harder to produce. Even if you factor in refiner profits on the West Coast, many are still having a very hard time making any money at all, and what business can survive the long term losing money? The only one that comes to mind is the government.
So far in the last few months, we've seen a few refiners close their facilities indefinitely. This isn't just cutting production, its ceasing production, sending Americans home jobless, and basically shutting the plant down. While this doesn't have an immediate impact on gasoline prices, should the economy roar back to life and gasoline demand rises, we'll likely need the capacity that the shut refineries offer- and you can't just flip a switch and have the refinery running.
While I don't think the refiners should take advantage of motorists, I don't think its in our best interest to put refineries out of business. It hurts everyone when a refinery closes- and it feels good for oil to stop the losses.
Many industry analysts (including yours truly) believe that more refineries may shut in the near future. Looking at the latest DOE figures, we see 78.5% of capacity is being utilized. That's concerning as there is too much spare capacity, driving down the price. While a few refinery closures have occurred, it still hasn't propped up the rest of the industry.
For those who are blindly against refiners- be careful what you wish for. We may see more facilities go offline, driving up prices as capacity for producing gasoline falls. Keep refineries open, keep gasoline costs down, and prices stable.
For what it's worth, Valero says it is close to selling it's plant in Delaware, and sources say several branches of government are working to make it happen. This is great news for just about everyone.