Baker & O'Brien, Inc.


News Details

News Details

Ben Schrader Presents at the Second Annual Argus US/Canada Asphalt Conference

April 13, 2009

Ben Schrader, a Senior Consultant in Baker & O'Brien's Houston Office, presented a paper at Argus US/Canada Asphalt 2009: Facing the Uncertain Road Ahead, titled "Light-Heavy Crude Oil Outlook: Implications for Coker Margins".

Following is a brief abstract of Mr. Schrader's presentation.  To see the full presentation, please click on the link at the bottom of the document.

The price spread between light and heavy crude oils has been persistently high over the past several years, leading to record margins for coking refineries.  The high light/heavy price spread was caused by several major factors that include:

  • The high absolute price of crude oil and the corresponding replacement of residual fuel oil with natural gas in the electricity generation sector;
  • The increased amount of vacuum residuum on the market due to high "simple" refining margins, which provided incentive for refineries without bottoms conversion to maximize throughput; and
  • The lack of sufficient refining conversion capacity (mostly in the form of delayed coking) to process the excess residuum on the market.

While the surplus of coker feedstock was favorable for coking refinery margins, the opposite was true for heavy oil producers, who faced steep price discounts for their crude oil grades. The recent high world oil prices likely "made up" for any heavy oil price discounts, as both light and heavy oil producers realized record high price netbacks. However, with the collapse in world oil prices and a generally poor economic climate, the outlook for the light/heavy price spread is of great concern to refiners and heavy oil producers alike.

Baker & O'Brien, Inc. examined a number of "Western Hemisphere" factors that will primarily influence the future supply and demand for vacuum residuum (or coker feedstock) against a backdrop of uncertainty in the world's oil and financial markets.

The following major factors and their influence are will be examined:
Supply Factors

  • Regional Heavy Oil Producers
    • Mexican Heavy Oil Production
    • Canadian Oil Sands
    • Brazil Oil Production Growth
    • Venezuela
  • United States (U.S.) Refining Capacity Rationalization
  • U.S. Crude Oil Production Decline
  • Resid Imports

Demand Factors

  • RFO, Asphalt, and Bunker Fuel Markets
  • Coker Projects

Please click here for the full presentation.