Basics of oil refining

The refining industry

The oil refining industry operates in a global business environment since crude oil, other feedstocks and refined petroleum products can be transported at a relatively low cost by sea and by pipeline and there is worldwide demand for such products. The principal factors affecting refining margins are the demand for and prices of refined petroleum products relative to the supply and cost of crude oil and other feedstocks and the configuration, capacity and utilization rates of refineries.

The range and quality of refined petroleum products produced by any given refinery depend on the type of crude oil used as feedstock and the configuration of the refinery. Light and sweet crude oils are more expensive and generate greater yields of higher value refined petroleum products, such as gasolines, diesel and aviation fuels. Heavier and more sour crude oil qualities are less expensive and generate greater yields of lower value petroleum products, such as fuel oils.

The configuration of certain refineries is typically oriented towards the production of gasoline whereas the configuration of others is oriented towards the production of middle distillates, such as diesel fuel and aviation fuels. In addition, there are refineries which are configured towards certain other specialty products, such as naphthenics and bitumen.

Oil refineries can generally be divided into two principal categories: complex refineries and simpler hydroskimming refineries.

Profit earning in oil refining

Oil refining is primarily a margins-based business, in which both feedstocks and petroleum products are commodities. Because operating expenses, excluding the costs of raw materials, are relatively fixed, refineries aim at maximizing their utilization rates and their yields of higher value-added products and minimizing their feedstock costs and operating expenses, such as energy.