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To: thackney

The operable word is “small”. Here’s why that matters.

If you really want to meet some prognosticators, look to oil refiners. To start with, crude oil around the world varies tremendously in the percentages of its nine major fractions. (simple chart).

http://www.gcsescience.com/o5.htm

The two biggest fractions, from the perspective of the market, are Petrol and Fuel Oil. Fuel oil consumption is absolutely dependent on future weather, that is, a cold winter means they need to produce more home heating oil *instead* of gasoline.

Likewise, gasoline prices are very interactive with the economy, that is, an economic slump lowers consumption; but rising gasoline prices puts downward pressure on the economy.

Now, here’s the zinger. Refineries have to *retool* for different petroleum fractions. Which is both very expensive and time consuming.

Needless to say, while refineries can guess what the future holds, guessing wrong ends up with them producing a product that nobody needs, and sinking its price. While they can put a little extra in storage, that is expensive as well.

So what big refineries can do is to make long, large contracts, to stabilize their market. This is already done in the crude oil markets, which is why crude oil is cheaper in the US, because we buy a lot of it, ahead of time, for a fixed price.

When you see variations in crude oil, you are looking at the spot market, where little countries who cannot afford big contracts at fixed prices have to shop. So they end up paying more.

Little refineries are in the same fix. They can’t make as much money refining the two big fractions, so they concentrate on refining other fractions. But the risk in doing so is greater, and unexpected costs can be ruinous.


5 posted on 01/30/2014 6:58:05 AM PST by yefragetuwrabrumuy (WoT News: Rantburg.com)
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To: yefragetuwrabrumuy
So what big refineries can do is to make long, large contracts, to stabilize their market. This is already done in the crude oil markets, which is why crude oil is cheaper in the US, because we buy a lot of it, ahead of time, for a fixed price.

Little refineries due the same. They are often (not always) situated for a local supply of oil and design for that oil.

I've done refinery design work in the past. While they can process some oil outside their design parameters, it usually is done less efficiently (meaning more costly). A small amout of out-of-spec oil can be blended in with a majority in-spec without great upset. If it is bought relatively cheaply, the economics still work on the original design.

Most folks don't understand the great varation in oil and the associated varation in cost of raw oil as well as associated varation in cost of refining.

6 posted on 01/30/2014 7:20:07 AM PST by thackney (life is fragile, handle with prayer)
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