VLO's CC shed some light on the refinery problems.

 

They said ti was due to a number of factors. The first being that low sulphur demands make the system more fragile to loss of output. Not only in more units but also critical paths. The other major item was the lack of skilled labor post-katrina. More projects to do and fewerworkers. They are competing w/ ethanol plans and oil sands. This has lead to some 30% drop in productivity and much longer times to complete turnarounds resulting in lower online capacity.

 

A lot of this makes sense.But Europe has not seen these problems. Also we didn't see the problems until this year, we have more unplanned outages than all of last year - according to some article I ran across. I don't believe its age since they didn't mention it nor does it fit the pattern. You would see a slow rise in outage rates over the years - this is not we are seeing. In fact until Katrina, we had lower outage rates and now a spectacular spike.

 

They kept the lower utilization rate to continue. Given the Europe has not had the same experience( and they the same old refineries and complex low sulphur refineries) I suspect its the labor issues. We had too much work to do post-Katrina(fixing the damge as wells as the low suphur projects, units for heavier and sour crude,and minor expansions) for the labor pool and finally stuff started blowing up from neglect. If that is the case, I expect us to slowly get back to normal levels in a couple of years as more people are hired and they become old hands.

 

If that's the case we will probably continue to run at lower than average rates for a while, but the worst is probably here. We will know in a few months. So that's bullish for the refiners for the next year or so. However, I still expect $30 gasoline cracks to come down soon, though the refiners may not drop much.