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Re: I've had
George,
I agree with Duke: I think you need to do some research. Assuming the majors could just build a new refinery (which I do not believe but let's make the assumption anyway), do you have any idea what that would cost? It would be hugely expensive. Refining margins are ok right now (just ok, not great). In the very recent past the oil companys operated with negative refining margins. So if you are a company in this situation, do you make a huge capital investement on something that offers very little ROI and possibly a negative ROI? What is the incentive? So that consumers can have cheaper gasoline? Rarely is a company in any industry that altruistic . . . You can't say that you will make it up in increased sales volume because gasoline is a fungible product and retailers do not always sell their company's own refined product (assuming they even are in refining--many are not). In these cases they buy their refined gasoline on the open market.
You may not know this but the sulfur content in your gasoline has been getting lower and lower in the past 10 years. So has the Reid Vapor Pressure. In 2000 suflur content was around 600 ppm. Today it has a max of 80 ppm and an average of 30. For diesel it is even lower. Refining low sulfur fuels is not easy or cheap and not all refineries have been updated to refine it or enough of it to meet demand. Same goes for lower RVP fuels. The upgrade of current refineries to handle the newer fuels is not dissimilar to the cost of building a new refinery. In this case, they have no choice because of gov't regulations--upgrade or stop production altogether. Additionally, many refiners are also upgrading to handle crudes that were previously unrefinable or uneconomic to refine. Why would they do this? Because there is a limited supply of crude and it has become economic to do so.
Just because you can buy a product easily does not mean it is not relatively scarce. The unequivocal fact is that there is a finite supply of untapped crude in the world. And there are a finite number of refineries that can supply the US market.
Joel
George,
I agree with Duke: I think you need to do some research. Assuming the majors could just build a new refinery (which I do not believe but let's make the assumption anyway), do you have any idea what that would cost? It would be hugely expensive. Refining margins are ok right now (just ok, not great). In the very recent past the oil companys operated with negative refining margins. So if you are a company in this situation, do you make a huge capital investement on something that offers very little ROI and possibly a negative ROI? What is the incentive? So that consumers can have cheaper gasoline? Rarely is a company in any industry that altruistic . . . You can't say that you will make it up in increased sales volume because gasoline is a fungible product and retailers do not always sell their company's own refined product (assuming they even are in refining--many are not). In these cases they buy their refined gasoline on the open market.
You may not know this but the sulfur content in your gasoline has been getting lower and lower in the past 10 years. So has the Reid Vapor Pressure. In 2000 suflur content was around 600 ppm. Today it has a max of 80 ppm and an average of 30. For diesel it is even lower. Refining low sulfur fuels is not easy or cheap and not all refineries have been updated to refine it or enough of it to meet demand. Same goes for lower RVP fuels. The upgrade of current refineries to handle the newer fuels is not dissimilar to the cost of building a new refinery. In this case, they have no choice because of gov't regulations--upgrade or stop production altogether. Additionally, many refiners are also upgrading to handle crudes that were previously unrefinable or uneconomic to refine. Why would they do this? Because there is a limited supply of crude and it has become economic to do so.
Just because you can buy a product easily does not mean it is not relatively scarce. The unequivocal fact is that there is a finite supply of untapped crude in the world. And there are a finite number of refineries that can supply the US market.
Joel
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