Most drivers are concerned about the rising prices of gasoline. However, the experts suggest that the refiners have to pay high prices for crude oil that is now trading at a record price of $115 a barrel. There has been a rapid increase in crude oil prices.
Canadians were paying an average amount of $1.21 per liter on Thursday. They were spending $1.08 when compared to the same time, last year. Edward Jones analyst Lanny Pendill reported that pump prices are not enough to make up for refiners up surging costs.
“So the net impact has been the profitability at the refineries has declined significantly from last year's levels” he further added, “The refiner, in essence, is absorbing some of that cost increase of oil.”
Pendill suggested that there will be an increase exploration and production profits of integrated oil companies like Imperial Oil Ltd., Petro-Canada and Husky Energy when they report their earnings next week. This increase is attributed to up surge in the rising oil price of crude.
“But that strong performance will be partly offset by less profitability in the refining operations because of the relationship of oil prices rising faster than prices at the pump”, he added.
Ted Stoner, vice president of the Canadian Petroleum Products Institute reported that, even if there is no increase in the price of raw products, it is expensive to build and operate refineries. The institute represents manufacturing and retail companies of the oil industry.
"For someone to manufacture gasoline or diesel ... you're talking about billions of dollars in investment," he reported.
Further adding, "One would wonder why would someone even want to get into this business. It's so capital intensive."
Since complex oil refining machinery has to be maintained on regular basis, the service stations are guaranteed to receive a stable supply of gasoline. That means that they have to be closed for scheduled repairs by the workers. However, unpredictable shortages have been posing bigger problems in recent months.
According to Stoner, "Reliability is the key. You have to keep it running"
In February, Esso stations across Western Canada were out of gasoline due to a breakdown at Imperial’s 187,000 barrel-a-day refinery near Edmonton. The oil facility resumed its production last week.
Similar problems were faced by Royal Dutch Shell PLC at its Scotford refinery near Edmonton. According to Pendill one of the reasons behind the problem is that no new refineries have been developed in more than 20 years, while the demand has significantly increased.
“In order to meet ever-increasing demand they're running these refineries harder and harder to try to keep up and when you do that, you're going to have some operational upsets” he added.