Monday, June 8, 2009
As you know from Oil 101, OPEC members' marginal production (that which members cut and add to the market) tends to be heavy crude oil. Refineries designed to run on heavy oil are therefore exposed to fluctuations in the price differential between heavy and light crude. When OPEC cut, as they have since the fourth quarter of 2008, heavy crude becomes more scarce and rises in price relative to light crude. This price rise removes some of the advantage which heavy crude refineries paid dearly (with expensive equipment) to have. Here is a Reuters story describing the situation such "complex" refineries face.