S&P’s: Refiners face capacity upgrade challenges

March 5, 2007
The global refining industry faces the challenges of upgrading its capacity to produce less-polluting fuels while processing increased volumes of poorer-quality crudes, Standard & Poor’s said in a recent special report on fluctuating oil prices.

The global refining industry faces the challenges of upgrading its capacity to produce less-polluting fuels while processing increased volumes of poorer-quality crudes, Standard & Poor’s said in a recent special report on fluctuating oil prices.

More heavy and sour crude is coming onto the market, and the complex process of refining this crude into fuels that meet stricter low-sulfur regulations is costly, S&P analysts said.

A growing price differential between light and heavy crudes will make it harder for refiners as they process greater volumes of lower-quality crude. Consequently, refiners must find the capital to fund enormous construction demands, S&P analysts said.

Oil and gas prices continue to be characterized by remarkable volatility, yet the impact has been minimal to the US economy so far, said David Wyss, S&P’s chief economist, during a Feb. 27 conference call.

Oil prices would have to go higher than they did in the past to damage the economy, Wyss said. Greater energy efficiency means oil is not as big a percentage of household spending as it has been in the past, he added.

He expects oil prices to fluctuate widely, noting that rising prices were not a drag on the economy last year as some economists had suggested. Likewise, he does not expect recent falling oil prices to boost the economy this year.

Wyss said his forecast is absent major geopolitical events that cause dramatically swinging oil prices.