<How the Energy Crisis Will Help My Diet The Oil Drum DrumBeat: July 19, 2006>

132 comments on Feeding the Beast

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Jack on July 19, 2006 - 6:40am Permalink | Subthread | Parent | Comments top
OK. You are probably right. I'm still going to track down the data. I found a great spreadsheet of crude price hiistories at EIA one day, but can't locate it now. Should get it done tonight.

However, after further reflection, I think it is the absolute spread ($ terms)that matters, not the relative spread (% of crude price).

Spreads between crudes are basically determined by the cost differential between converting heavy crudes and light crudes to products. As I noted above, if the average cost of converting a Urals slate to a given product slate is $5 more than the cost of converting WTI, the spread should be about $5.

If the spread has gone up in proportion to the oil price, I do think it represents a lack of light crudes and/or complex refineries. Absent these constraints, I think the spread would have remained consistent in nominal terms and shrunk in relative terms.

Valero's refining margin is basically fixed. They, like other highly complex refineries, make money when the spread is large in absolute terms. The crude price itself and the value of the spread realtive to it are not important.

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nero on July 19, 2006 - 9:48am Permalink | Subthread | Parent | Comments top

The fundamental spread tht determines profiablility is the price differential between cost per barrel of heavy sour crude and the price they get for the products produced from that barrel of oil.  

Part of the reason for the discount for heavy sour crude is because it doesn't produce as much gasoline.  If that is the dominant reason for the spread then it makes good sense that the spread betweeen heavy and light should remain constant on a percentage basis.  

If on the other hand the spread is really there to compensate the refiner for the added cost of refining the stuff then it should remain constant on an absolute basis.  

In the real world it would be a mixture of the two, it is probably best just to attempt to track the spread between their cost of materials(heavy crude) and the weighted average of the price they get for the products.  

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oilmanbob on July 19, 2006 - 2:34pm Permalink | Subthread | Parent | Comments top
I am not an expert in refining, but I do know that crude is sweetened at a refinery by mixing it with hydrogen with a catalist and taking the resulting hydrogen sulfide gas and removing the sulfur by freezing it so the sulfur drops out, or burning the hydrogen sulfide. All of this process is energy intensive-the hydrogen comes from natural gas. Gas prices are fairly low right now, but, as they rise will raise the refining costs. I haven't the slightest idea about how much gas is needed, but probably someone who knows can fill us in.
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tate423 on July 19, 2006 - 2:47pm Permalink | Subthread | Parent | Comments top
This being the case you would think the gas going forward will cause exponential price increases at the pump as we pay twice to make gas from crude?  Would this be fair?
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132 comments on Feeding the Beast

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