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Oil and Gas Refinery

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March 06, 2008 – Comments (3)

I am not sure if I posted about this.  One of the problems in the whole oil and gas issue is the refining capacity.  Refineries are a huge environmental headache to build and they are expensive.  I haven't followed the whole issue that closely but it has been suggested that insufficient refining capacity is helping to keep prices high.

The degree of the problem just hit home...  Edmonton Imperial Oil refinery has reduced production and now gas stations might run out of fuel.

Refineries might be a very good investment...  But then, it might be late to the party. 

3 Comments – Post Your Own

#1) On March 07, 2008 at 12:50 AM, WillSurfForFood (87.60) wrote:

Insufficient refining capacity has nothing to do with high oil prices. The oil is an input to the refiners, if anything refining limitations would have the opposite effect on oil prices.  Insufficient refining capacity can cause the price of gas (the output) to go up quite a bit as we saw in the wake of Katrina. Right now the price of oil is just over $100 per barrel. About 42 gallons of gas are produced from each barrel. That means it costs the refiners about $2.50 per gallon just for the raw goods. Add approximately $.25 per gallon in refining costs plus about $.25 in taxes and another $.25 in transportation costs and you get about $3.25 per gallon. That doesn't leave much profit for the refiners. I don't see how they are making much money right now. The high cost of oil is causing a little demand destruction in the US (demand is still growing world wide) and new refining capacity is being added for ethanol and biodiesel. I may be wrong but I don't think the refiners will make great investments. There are many good investment ideas in energy, deep sea drillers and Canadian oil sands stand out in my mind.

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#2) On March 07, 2008 at 3:11 AM, AnomaLee (28.84) wrote:

"There are many good investment ideas in energy, deep sea drillers and Canadian oil sands stand out in my mind."

I concur adding companies in the oil service industry. Many of the major oil & gas drillers are expected to increase their investments to expand drilling capabilities.

Well, I'd still add that the U.S. has the most oil refining capacity of any nation. That is why gasoline prices in the U.S. are typically lower than gasoline prices in other developed nations, but with these commodities reaching new highs the end-process businesses are facing pressure on operating margins. The only way to alleviate that business problem is to eventually pass the cost on to the consumer. That is why I so adamant that 'inflation' is poised to be above "tolerable" going forward.


Headlines
 

Valero Energy Fourth Quarter Earnings Call

"The energy firm reported a 51% increase in revenues to $28.7 billion on improved margins in some regions though overall margins for gasoline and secondary products were lower as the prices for those products did not increase in proportion to the cost of inputs."

ExxonMobil to invest over $125b in new energy projects

"WASHINGTON (AFP) — ExxonMobil Corporation, the world's biggest energy company, said Wednesday it planned to invest over 125 billion dollars in major new projects during the next five years." 

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#3) On March 07, 2008 at 3:24 AM, DemonDoug (91.96) wrote:

dwot, many refiner pure play companies have been severely hammered down in the past week, and I love all of them.  Here are some tickers: TSO, WNR, VLO, HOC, SUN.  I've got the green thumb up on all of them.  Hess is another one, haven't rated it yet though.  I love picking up refiners on down ticks.  Oil oil oil... and I keep trying to get a sense of BQI.  I can't tell if it's a great opportunity or more a scam that just won't work out.

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