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Yeah, that's why the oil companies are closing refineries, uh huh.

http://www.huffingtonpost.com/jamie-court/memos-show-oil-companies-_b_6980.html


Ah, yes the conspiracy theorists again.

"The oil companies are purposely closing refineries to create shortages" -- of course, why did this brilliant thought not occurred to a "credulous fool" like, me?


Mr, Facken, have you looked at the companies that have closed refineries? Have you taken the time to investigate or know why these refineries have been closed and for what reason? Has it occurred to you that perhaps there are legitimate reasons other than the headline conspiracy assumption of the article you refer to, that is accusatory and pre-judges the answer without a thread of evidence to support the headline conclusions?

Do you know how many refineries Exxon has closed in the last 30 years? ... how about none!!! Do you know that Exxon has been expanding its capacity through de-bottlenecking steps in a way that it adds the equivalent of one new refinery every two years, and so has most of the industry?

It is just so illogical to think that a Chevron or a Tesoro or a Valero would close a refinery or refineries purposely to create shortages so that an Exxon or a Shell or a Conoco refinery could make more money, while they themselves sacrifice for the rest of the industry,today?

Yes, there were many refineries closed in the late 80's and early 90's. They were closed because they were small, they were losing money hands over fist, and they could not make the investments to meet the increasingly stricter environmental rules.


THE STORY OF HOW A TON OF UNECONOMICAL SMALL REFINERIES WERE BUILT WITH GOVERNMENT SUBSIDIES

There were a lot of small tea-kettle refineries built in the late 70's, because in one of the most moronic moves in energy policy, Richard Nixon created the so called "small refinery bias." The most recent moronic move supported by morons on both sides of the aisle, is of course the "ethanol" program with its "mandate."

Don't you love it when government tries to do something they deem "good" to correct a problem it believes "it knows better" how to handle it than private enterprise, and contrary to the announced outcome, proceeds to screw things up royally?

The "small refinery bias" of the 1970's arose out of a broder system of pricing oil whereby smaller refineries (I believe less than 40 kBD) received huge government subsidies through a complicated pricing system established under a system of prices that monitored what was called "new" and "old" oil production. This system allowed for the transfer of several dollars per barrel subsidy to the "small" refinery owner.

It was a great way for a few hundred owners to get rich, while processing crude inefficiently and wasting a lot of energy in the process -- and this was happening when we were in the midst of an "energy crisis".

Did it not occur to anyone to see that these refineries that were boiling this crude and producing often times offspec products, that were later resold to the bigger refineries for re-blend, were wasting precious energy in the process? Precious energy we were suppose to conserve and save.

And here we are on this board with people wanting government to do "something"; to "force" other people and companies to do this, or to force the car producers to do that, ... a government bureaucracy that has proven over and over to be incompetent (look at the execution of the Iraqi war for crying out loud)...and some want the government, this very government that over and over my lifetime has proven to be incompetent under both parties, to do the bidding for us in the energy area ?--- and then, you call me a "credulous fool"? ... look who is calling the kettle black

So imagine, in an environment where refineries in the 1970's and 1980's would be lucky to make the equivalent of 1 penny a gallon --and those were the real efficient ones, government developed a system that would transfer 10 times the then prevailing profit margin of about 1 penny to a smaller, inefficient operator.

Of course the political justification for all of this policiy stupidity is somewhat similar to the political hysteria that exists today, .. "the big oil companies". They were accused of having colluded and withheld supplies in the 1970's in combination with the Arabs. And predictably, the macho politicians were claiming and thumping their chests like orangutans, and halloring ... "we need to break the back of their monopolistic refining hold on the market".

And these are the same kind of political imbecils that we want to trust to help us correct the so called "energy dependency problem" -- the root cause of which they have incorrectly diagnosed.

And unfortuantely, we have two problems. One is supply reliability. The other is lack of domestic refining capacity resulting from all the regulations that have made it impossible to economically build new, grass roots refineries. When was the last time CNN, or PBS, or Fox said it that simple?

So just imagine the proposed solutions that are and will be emmanating from the wisdom halls of Washinton, D.C. especially now that the Democrats have taken over the asylum, and from every looney left and self-proclaimed consumer protection advocate, and left wing enviromental wackos? !!!


Instead of a small refinery bias, we have instead a brilliantly conceived ethanol program that uses more energy in the process of making a gallon of ethanol than it yields back when consumed as fuel, and a windfall profitS tax proposal to be imposed on those companies that can find oil cheaper so that monies could be transferred to those that can produce "alternate energies" at equivalent costs of $100 to 500 dollars per barrels "to force the oil companies to reduce prices" ---WHAT? ... this is what I call, SMART LOGIC!!!

Talk about "entitlements" ... the oil entitlement program made many, many people millionaires at the expense of taxpayers, without solving the pricing/shortage problem.

I don't have the exact figures with me handy, but I believe it was well over 100 of these tea-kettle refineries that were built. They operated for years inefficiently and wastefully until the system began being dismantled in the early 1980's.

The result was that these tea kettle-refineries , after a phase out period, could not survive and had to be closed down . They should have never been built in the base case, but as is usually the case with government programs that try to "solve" problems, they create unintended consequences.

Since the early 1990's, refinery capacity in the U.S. has been growing despite closure of smaller refineries. Most of these closures were strictly economic, and in most cases they were linked to the inability to meet ever stricter environmental rules. It is that simple. It was a classic combination of stricter environmental rules versus economics -- and not conspiracy as you suggest.



Since we're doing ad hominems, you're a credulous fool who believes everything is the result of legitimate fears and not market manipulation.

The fun part is that oil companies can ignore their record of supply manipulation and claim that 'it's the market'. And you believe them.


Perhaps I am a "credulous fool" -- I can accept that. But from where I sit in the 25 odd years that I have worked with Exxon, mostly in supply and refinery -- so I know this business well and intimately familiar with the market mechanics, there has never been but the highest ethical standards in our refining and trading group about everything we produce and sell.

In fact, as a corporate policy, Exxon is one of the few companies that as a policy forbids its supply people from either hedging, or buying derivatives -- all of it financially legitimate instruments in the market today -- simply because it can lead to someone creating a situation that could be interpreted as market manipulation.

In fact, as an employee of the corporation, I am forbidden to buy puts or calls, or buy ExxonMobil stock on the margin. I am forbidden to buy crude futures, even if it is for my own account. Or engage in anything that has to do with hedging or derivatives.

Any employee doing such thing even if its for its private account, will be ipso facto, fired. The reason is not legality, the reason is the perception -- and Exxon does not want people accusing the company that it is manipulating, or its employees, the market because of this or that hedge -- it is a P.R. nightmare. Even though every body knows these are legitimate financial instruments and perfectly legal transaction vehicles that can be used by others.

Now, I would not be as naive to think that there are not people or companies out there that may try to "play"the market. But there are rules and there are laws, and if a company or group is found violating the law -- you throw the book at them --for example, Enron... and you wipe them out.

But there is a big difference between the action of one or two rotten apples - and industry as a whole. And it straps my credulity to think that if the conspiracy theories that you propose were credible that many more people would be in jail by now.

As I said in one of my postings, a "hedger" may be able to pull a market stunt that may last a minute or two, or a half a day in the market -- that is it. Butthis idea than any one individual or group, no matter how big it is can influence the fundamentals of pricing in markets like New York or the U.S. Gulf spot market, or Rotterdam, or Singapur, does not really know how the industry and markets work.

You cannot keep prices high (or low) artificially for a long time on any commodity just base on market manipulation, and not know who the culprit or culprits are -- it just not possible. There are too many checks and balances, too many market actors, and a lot of monitoring for market manipulation to go on without the government knowing about it. If not, I suggest you go talk to an economics professor at one of the universities if you don't want to believe me.

The oil business is one of the most transparent and competitive businesses in the world -- if not, would you think its margin would be lower than the average of all the margin of all industrial businesses in the U.S.

Does an average profit margin of a little over 8% seem to you as "excessive"? In other words, with crude at $60/B, Industry gets to keep about 12-15 cents per gallon give or take a penny or two. That is it.

What do you propose, that we give half of it back? To give back to the consumer 6 cents per gallon? ... wooopy!!! ... and then what?

If you do that for the oil industry, would you propose the same for those that have made a ton of money in real estate with the appreciation of their assets?

Or should we also ask those that have invested in the stock market to give back half their capital gains? (wait till the democrats control the White House and Congress after 2008, and you will see what I am talking about)

The market pricing mechanisms that exists today for trading and hedging of futures are pretty transparent for all world commodities. If they were not, people and companies would not be so stupid as to do transaction through them.


When you go buy a shirt at Macy's or Ross or Wall-Mart, do they have their prices posted outside for everyone to see -- fat chance. And yet, prices at refinery gates and prices at service station are out there for eveyone to see and compare, and in addition they are published daily for those that are subscribed to pricing services that monitor prices at every major terminal/refinery in the U.S. and at major refining centers throughout the world.

Do you believe all of these hundreds and thousands of terminals and refineries talk to each other and coordinate and collude daily to post their prices ? That would be quite a job? ...and who would coordinate this collusion -- Exxon, Chevron, BP, Shell, Tesoro, Valero, Conoco Phillips... who?

How come there have been more than 30 investigations on topics of industry price collusion, price manipulation, price gouging, and the government has never found evidence of any industry conspiracy?

Markets are too complex today, with hundreds upon hundreds of actors for anyone individual or company to manipulate. If the major oil companies were as powerful and with capability to manipulate markets and prices as you seem to think, how come there are so many independent gas station operators, operating with a logo of a non-major oil company?

How come prices collapsed but 6 years ago?

Were the manipulators all on vacation?


I am a mother of 4 children and I like for them to learn (I recently had a baby --thank God for Grandparents!!!), and I tell my three older ones --I can explain something to you, now it is up to you to decide to accept what I say, and understand it, or find me factual evidence as to where I am wrong.

Madame Butterfly
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