Oil refineries produce worth-added petroleum products from crude oil. Profitability is thus decided by a number of completely different variables:
– Feedstock costs (primarily crude oil)
– Fuel costs and different operational costs for the refinery itself
– Costs of complying with emissions laws (notably NOx)
– Market prices for the products produced.
Figuring out profitability for a selected refinery could be very difficult since information on operational and environmental compliance costs are usually not obtainable. A tough measure might be obtained by calculating the price of crude-oil feedstock (although to do that with precision would require knowledge of the crude blends used in a particular refinery) and evaluating that value with the market value of the suite of products produced at the refinery. This still requires more data than might be publicly accessible for a typical refinery, and is topic to market conditions for the varied merchandise produced.
A helpful but simplified measure of refinery profitability is the “crack spread.The crack spread is the difference in the sales price of the refined product (gasoline and gas oil distillates) and the worth of crude oil. A median refinery would follow what is called the three-2-1 crack unfold, that means for each three barrels of oil the refinery produces an equivalent two barrels of gasoline and one barrel of distillate fuels (diesel and heating oil). This ratio of refined product output carefully mirrors the composition in Figure 2.4, however do not forget that the crack spread is just a first-order approximation of how worthwhile a refinery would be on the margin! The upper the crack spread the more money the refinery will make, so will probably be using as much capability it has accessible. Inversely, at some lower crack spread prices, it really could also be within the refinery’s finest curiosity, as a consequence of prices for the plant, to scale again the amount of capability utilized.
Calculating the three-2-1 crack unfold typically makes use of printed prices for crude oil, gasoline and distillates. These costs are sometimes taken from the brand new York Mercantile Exchange. The NYMEX has traded contracts for crude oil and gasoline however no contract for diesel gasoline (essentially the most-produced of the distillate gas oils). In calculating the three-2-1 crack spread, prices for heating oil futures are typically used instead. Below is an example of the right way to calculate the crack unfold, utilizing knowledge from 2012.
– Oil Worth: $Eighty four.Fifty four/barrel
– Gasoline Value: $2.57/gallon
– Heating Oil Worth: $2.79/gallon
– (remember that 42 gallons = 1 barrel)
– (2 barrels * forty two gallons/barrel * $2.57/gal of gasoline) +
(1 barrel * forty two gallons/barrel * $2.79/gal of heating oil) –
(three barrels * $eighty four.Fifty four/barrel of oil) =
$seventy nine.Forty four revenue / three barrels of oil.
– The crack unfold would thus be $seventy nine.44 / three = $26.48/barrel of oil
The crack unfold, after all, shouldn’t be an ideal measure of refinery profitability. What it actually measures is whether the refinery will generate income at the margin – i.e., whether an additional barrel of crude oil purchased upstream will yield enough revenues from saleable products downstream. In actuality, present refineries must consider their refining prices in addition to only the price of crude oil. These prices include labor (although that is generally a small a part of refinery operations); chemical catalysts; utilities; and any brief-time period monetary prices reminiscent of borrowing cash to take care of refinery operations. These variable prices of refining could quantity to maybe $20 per barrel (depending on situations in utility pricing and monetary markets). In the example above, the true margin on refining would be $6.58 per barrel of crude oil – much lower than the easy crack spread would counsel.
The crack spread tends to be sensitive to the slate of products produced from the refinery. In the instance above, we used gasoline and distillate gasoline oil (heating oil) because those are two usually high-valued merchandise, and U.S. refineries are usually engineered to maximize manufacturing of gasoline and fuel oil.
The crack unfold can be sensitive to the collection of the oil value used. In the instance above, we used the NYMEX futures value for crude oil, which recall is based on the West Texas Intermediate blend – a fairly light crude oil. Many U.S. refineries, nevertheless, are engineered to just accept heavier crude oils as feedstocks. If there are systematic variations in the costs of heavy crude oils versus West Texas Intermediate, then the crack spread calculation (while illustrative) is probably not wise for a specific refinery.
The Energy Data Administration lately published a couple of excellent articles describing how the U.S. refinery fleet has been adjusting to modifications in U.S. crude oil production. Not solely has the quantity of crude oil produced in the U.S.