Understand how cme group can help you navigate new initial margin regulatory and reporting requirements. If a crack spread is a positive number then the price of the refined products is higher than that of crude oil, the raw material, and the spread is profitable. Sustained healthy refining margins in europe have allowed the sector a. Oil 101 refining business drivers downstream oil and gas. Shell has said on many previous occasions that it has seen weaker economic activity impacting margins in its refining and chemicals segments. Operating expenses and margin analysis of the european union eu refineries vs regional peers tracy ellerington third meeting of the eu refining forum. The refining crack represents the price difference between the finished, refined products which translate into refiner revenues and the price of crude oil one of the primary factors in refiner. According to new data from the eia, refining margins. In the united states, benchmark gasoline refining margins were near their lowest levels since february 2017 after stocks on the east coast rose last week to 70. Below we examine the dynamics of three critical segments of the downstream sector. Rotterdam complex refining margins at 3month high reuters. The general rule is that you should look for a nonzero first derivative especially a negative derivative of the oil price if you want to see refinery margins go up. Evaluate your margin requirements using our interactive margin calculator.
Oil prices have plunged to oneyear lows, but refiners in certain parts of the u. The record runs are squeezing the oncemighty profit margins for refiners. Hollyfrontiers refining index values point towards the refining crack conditions in the regions where the company operates. What correlations are there between the price of crude oil. Crack is one primary indicator of oil refining companies earnings. Rbob gasoline crack spread futures quotes cme group. Part of the strength was due to regional refineries beginning seasonal turnarounds, lowering demand for crude and reducing product inventories. The crack spread is the difference between petroleum product prices and the crude price. A new proxy for coking margins forget the crack spread the socalled 321 crack spread has been used for many years by refining industry analysts as a broadbased indicator of the economic incentive to convert crude oil into finished products. European gasoline cracks sink to fiveyear low reuters. While all regions showed stronger margins, the us west coast continued to lead the rise, driven by unplanned regional refinery outages as margins hovered near record levels. The crack spread represents the theoretical refining margin. Strong crack spreads the margin on turning crude oil into diesel, gasoline and other products have spurred refiners to keep production high. The production capacity of the refinery is 1 million tons per year.
Optimizing the hedging strategy for oil refining companies. An investors guide to refinery stocks the motley fool. Daily figure is based on last five 5 days rolling average. Forthcoming changes to global bunker fuel specifications aimed at reducing.
Refining margins are thus dependent on input crude oil cost, product slate, and prices of refined products. If the spread is a negative number, the products are priced at less than the cost of crude and are not profitable. Refineries process crude oils, which have different types of hydrocarbons with carbon chains of different lengths, into a broad range of refined products. An independent refiner who is exposed to the risk of increasing crude oil costs and falling refined product prices runs the risk that his refining margin will be less than anticipated.
He decides to lockin the current favorable cracking margins, using the 3. Operating expenses and margin analysis of the european. Unless you simply burn it, crude oil in its natural state is of no use to consumersit. Refining margins, or cracks, for jet fuel slumped over 61% this week, their steepest weekly decline in at least eleven years. Crude oil processed through a us refinery typically yields about twice as much motor gasoline as distillate fuels. These companies margins have widened proportionately. The refining process separates, breaks, reshapes and recombines the molecules of crude oil into valueadded products such as gasoline, diesel and aviation fuel. This combination of low gasoline and high distillate refining margins may signal a shift by refiners to maximize diesel fuel production instead of gasoline production. According to new data from the eia, refining margins for motor gasoline. The gross refining margin grm is the difference between the total value of petroleum products coming out of an oil refinery output and the price of the raw material, input which is crude oil. When oil prices rapidly change, refineries are able to take greater profits w. The source for financial, economic, and alternative datasets, serving investment professionals.
Typically this is per barrel of crude oil processed, but it could also include other feedstocks as inputs refiners typically measure margins at several levels to measure different dimensions of performance. The rotterdam refinery in the netherlands was launched in 2011, and it produces renewable products. How refining margins are key indicators of refining. A crack, or crack spread, is a term used in the energy markets to represent the differences between crude oil and wholesale petroleum product prices. The crack spreads in the amsterdam rotterdam antwerp ara region of europe and in singapore, two global refining and distribution hubs, suggest markets in these regions are experiencing similar trends. However, the effects of low oil prices on downstream companies vary by segment and, within some segments, by region. However, global refining margins, including the complex margins in rotterdam, remained below past year averages because middle distillates crack has weakened sharply, due to supply gluts. Asian gasoil refining margins skid to 4mth low as china. Hedging refining profit margins with crack spread options over the past year, refining profit margins have been quite volatile. The refinery is located in the maasvlakte district west of the port of rotterdam.
Crack spread is defined as the difference between the price of a particular crude oil and a weighted average of the prices of a few refined products, as these prices are. Asia distillatesgasoil cracks weaken to post fourth. One type of crack spread contract bundles the purchase of three crude oil futures 30,000 barrels with the sale a month later of two unleaded gasoline futures 20,000 barrels and one heating oil future. Refinery margins are a measure of the value contribution of the refinery per unit of input. A key indicator of refinery margins and ultimately profitability is called the crack spread.
The grm gross refining margin of a refining company is derived by subtracting the cost of crude oil it consumes from the total market value of refined products it produces. The nymex gasoline crack spread, a rough measure for how much refiners make from producing the motor. Crack spreads are an indicator of the shortterm profit margin of oil refineries because they compare the cost of the crude oil inputs to. Asia distillatesjet fuel refining margins post record.
Computing refining margin requires detailed proprietary information or estimates of a refinery s crude slate, product slate, and all the corresponding refinery gate prices. It is a trading strategy used in energy futures to establish a refining margin. French strikes give brent refining margins a lift platts. A common version of this indicator is the 321 crack spread, which assumes 3 barrels of crude oil can be used to produce 2 barrels of gasoline and 1 barrel. The crack spread contract helps refiners to lockin a crude oil price and heating oil and unleaded gasoline prices simultaneously in order to establish a fixed refining margin. Optimizing the hedging strategy for oil refining companies 8 the currency risks and associated cash flow and financial reporting impacts are depicted below. The crack spread is an oil industry term that refers to the difference in price between where a refinery buys raw crude oil and sells the petroleum products it makes from this oil. So far in the first quarter, the index values have put up a. Hedging refining profit margins with crack spread options. Crude oil crack spreads to put the big squeeze on refiner. Refining cracks and oil spreads are widening in the current quarter due to the effect of imo 2020. Shell puts gulf coast, puget sound refineries up for sale. Find information for rbob gasoline crack spread futures quotes provided by cme group.1541 1100 214 908 306 638 165 769 711 121 1311 472 550 1137 1163 97 709 1017 977 903 1421 404 1354 1301 1396 820 354 1279 1218 955 370 972 1296 984 245 1447 445 1088 218 659 1105 1013 696 1193 439