I had the fortune / misfortune (depending on the year) of covering this space for awhile. Generally agree with your framing, but a few questions to think about:
1) There’s a bit of a disconnect between “cracks are structurally higher for longer” and “it doesn’t make sense to increase supply”. No one is ever building a new refinery in the …
I had the fortune / misfortune (depending on the year) of covering this space for awhile. Generally agree with your framing, but a few questions to think about:
1) There’s a bit of a disconnect between “cracks are structurally higher for longer” and “it doesn’t make sense to increase supply”. No one is ever building a new refinery in the US, but what are the incremental returns to a PADD 3 refiner adding an incremental distillation unit if you’re right about cracks? And while the ESG / NIMBY may be a headwind to new supply in the US, it sure won’t slow down overseas capacity growth.
2)The other question I have is whether the COVID-related mothballing has pulled forward earnings. When demand starts to flatten / decline later this decade, it’s going to take a much stronger price response to take out incremental refining capacity because a bunch of the high-cost, marginal capacity has already been taken off the cost curve.
I had the fortune / misfortune (depending on the year) of covering this space for awhile. Generally agree with your framing, but a few questions to think about:
1) There’s a bit of a disconnect between “cracks are structurally higher for longer” and “it doesn’t make sense to increase supply”. No one is ever building a new refinery in the US, but what are the incremental returns to a PADD 3 refiner adding an incremental distillation unit if you’re right about cracks? And while the ESG / NIMBY may be a headwind to new supply in the US, it sure won’t slow down overseas capacity growth.
2)The other question I have is whether the COVID-related mothballing has pulled forward earnings. When demand starts to flatten / decline later this decade, it’s going to take a much stronger price response to take out incremental refining capacity because a bunch of the high-cost, marginal capacity has already been taken off the cost curve.