Refining Overview
The refining industry has struggled with margin compression over the last six months. Refiners’ inputs and products are both commodities, which means that the price they pay for inputs and the prices they receive for their products are generally determined by the market. Therefore refiners earn profits through generating efficiencies and increasing their market share. Although the price of crude oil remains low in comparison to historical levels, refined product prices have followed suit and operating expenses have increased with the cost of Renewable Identification Numbers (RINS).
Although the price of refined products has increased somewhat over the last few months, refiners’ earnings are still compressed. The M&A market reflects this as struggling companies are merging in order to increase stable cash flows and reduce operating costs.
