Read the previous string on gas price. Below is a article in this weeks Economist which may spread a little light on subject:A cracking trade
May 17th 2007
From The Economist print edition Oil refineries are cashing in after years of lacklustre profits
THIS week average petrol (gasoline) prices in America reached a new record of $3.10 a gallon, according to the Department of Energy. Drivers are up in arms and politicians are getting twitchy. Congress is even considering legislation against price-gouging. The culprit is not the oil price, which has hovered above $60 a barrel for months, well below last year's record of $78. Instead the squeeze comes from a shortage of refining capacity. The difference between the price of the crude oil refineries buy, and that of the petrol they sell, has risen above $30 per barrel—a record for this time of year. Refining, long a marginal business, is becoming lucrative.
A number of catalysts are converting refineries into mints. The most immediate factor is an unusually high number of closures for maintenance. Most refineries schedule repairs for the springtime before the summer “driving season” begins. But this year eight times more capacity than usual has been shut down, according to official figures. That is partly because several refineries have still not recovered from accidents, including a deadly explosion at one of BP's American plants in 2005 and a fire at a facility belonging to Valero, another refining firm, earlier this year. Chastened by such disasters and the bad publicity they bring, managers are also taking more time and care over maintenance. But even at the best of times America is short of refining capacity. No new refinery has been built in the country since the 1970s (though existing ones have expanded somewhat). Meanwhile demand for petrol has grown steadily and remains buoyant despite the high price. Francisco Blanch, an analyst at Merrill Lynch, calculates that a 50% increase in the wholesale price of petrol reduces demand by only 1%. As a result America imports an ever-growing proportion of its petrol, mainly from Europe. But imports are getting more expensive because of the weak dollar. Many refineries in Europe are also in the midst of repairs. Stocks of petrol recently fell almost as low as they did after hurricanes damaged several American refineries in 2005, though they have since picked up slightly. Around the world there has been little investment in new refineries since the Asian economic crisis of the late 1990s, which saddled the region with huge overcapacity. European refiners also found themselves with too much petrol on their hands in the 1990s, thanks to an unforeseen shift towards cars that run on diesel. Such bountiful supply kept margins low. But the overhang disappeared faster than expected because of rapid economic growth around the world, and in China in particular. At the same time, ever more exacting fuel specifications in Europe and America have made refineries there less productive. The Chinese government, for its part, caps petrol prices, forcing refineries to sell at a loss, so discouraging investment in new capacity in the world's fastest-growing market. The basic design of many older refineries has also contributed to higher petrol prices. These old refineries tend to churn out more fuel oil than petrol, but can often only sell the fuel oil at a loss. So a very high petrol price is needed to lure them into production. Refining firms are now falling over themselves to announce new projects or expansions, especially for “upgraders”, which produce higher proportions of the most valuable fuels, including petrol. If all these plans were to be implemented, warns Lindsay Sword of Wood Mackenzie, a consultancy, there would be another glut. But she does not think they will be. Like every other part of the oil industry, refining is suffering from an acute shortage of building materials and skilled labour. Tesoro, an American refiner, scrapped one scheme last year because of rising costs. Kuwait's national oil company has delayed another for the same reason. As recently as last year, American officials expected 1.6m barrels per day of new refining capacity to be built by 2011. Now they are projecting only two-thirds of that. Merrill Lynch does not see much new upgrading capacity becoming available until 2009 at the earliest. The next few summers will be expensive for America's drivers—and nerve-wracking for its politicians. (Congress just passed a new price gouging bill. I'm real sure that will help.
| 
