Oil refinery shutdown

[bravo22b]

I remembered this news item while reading TR's comments on refinery capacity in the survival scenario thread. I don't think that this news in any way alters the fact that the U.S. is short on refinery capacity, but it is an interesting development and touches obliquely on several ongoing discussions here on PS.com.

http://phx.corporate-ir.net/phoenix.zhtml?c=99437&p=irol-newsArticle&ID=1339286&highlight=

PHILADELPHIA--(BUSINESS WIRE)--Oct. 6, 2009-- Sunoco, Inc. (NYSE:SUN) announced today it is indefinitely idling all process units at its Eagle Point refinery located in Westville, New Jersey in an effort to reduce losses in its refining business at a time when a recessionary economy, weak demand for refined products, and increased global refining capacity have created margin pressure on the entire refining industry. Sunoco will shift current Eagle Point production to its two nearby refineries in Marcus Hook and Philadelphia, Pennsylvania, which will now operate at higher capacity utilization. The company will be able to produce essentially the same amount of refined products in two facilities that it currently produces in three while continuing to meet customer demand.

[The Reaper]

The issue here is that refineries make money when the spread between crude and refined products are high. When the spread is low, they make less. Sometimes, they can actually lose money.

This looks more like an attempt to drive gasoline prices up and increase the spread by tightening supply, or just spooking speculators.

TR

[Pete]

It's a cut throat business out there. People will drive a few miles to save 5 cents a gallon on gas.

Short Stops make their money on in store sales.

400 less employees and an idle plant will save the company money.

[bravo22b]

The issue here is that refineries make money when the spread between crude and refined products are high. When the spread is low, they make less. Sometimes, they can actually lose money.

This looks more like an attempt to drive gasoline prices up and increase the spread by tightening supply, or just spooking speculators.

TR

Agreed. My first reaction when I read this was exactly that, an attempt to artificially tighten supply. Upon closer reading, Sunoco claims that two other refineries will pick up the slack, therefore running at higher capacity and higher efficiency. It makes perfect sense from a business perspective.

The reason I felt it was worth posting was strictly informational. There are so many other topical issues that this relates to in some way. If nothing else, it demonstrates how difficult it would be to increase refinery capacity in the U.S. by relying solely on market forces.