Saturday, November 12, 2011
Refining driving dip in oil inventory
When oil is cheap relative to end distillate products, refining margins will increase. If you can get cheap oil, you will run flat out and try and make as much money as possible. This is what has happened in the Midwest. The result is a fall in Cushing, OK inventory. NYMEX crude has moved from contango to backwardation and the spread between NYMEX and Brent has collapsed.
Refiners who use North Sea oil or OPEC oil are not running at high cap utilization rates and have lower margins. The refining economics are simple, but will not last as inventories get tighter and prices increase.