Refining MArgin

Last week (August 7, 2013) the 3-2-1 crack spread based on NYMEX CME crude and refined product prices that is seen as a proxy for the performance of US refinery margins, reached a two year low. The 3-2-1 crack has fallen 56 percent this year from its high in March. At the same time refineries are still processing crude like there’s no tomorrow – at over 90 percent of capacity. Can the party continue? Today we peak through the cracks to uncover what’s going on.

There is plenty of crude oil in North Dakota but the State does not refine enough of it to meet rising demand for diesel caused by booming energy industry activity. The latest North Dakota Pipeline Authority data shows oil production in February 2013 up 40 percent since February 2012 to 778 Mb/d.  Demand for diesel increased 35 percent between February 2010 and February 2013. North Dakota’s only refinery produces less than half the diesel the State consumes. To help remedy that disparity the first new refinery to be built in the Lower 48 since 1977 is under construction today and two more new refineries are planned. Today we look at the refinery economics.

On Friday (December 14, 2012) PBF Energy stock closed up at $27 two days after its initial IPO listing at $26. The company purchased 3 refineries with 0.5 MMb/d capacity during the past two years. PBF’s Midwest refinery has since profited handsomely from access to cheap US and Canadian crudes. PBF is also leading the way with a novel outsourcing approach to its supply and marketing arrangements. Today we complete our two part analysis of PBF’s refineries.