Oil Processing

Vincent Kaminski

Understanding the processing of oil is very important for any participant in the energy markets. The demand for oil is derived from demand for refined products. At any given point in time, a refinery can be best described as using what is known in economics as a fixed coefficient model (or a fixed coefficient production function). The chemical characteristics of oil available to a refinery are given, and the way a refinery is configured determines the basket of outputs. Over a longer time period, measured in months, a refinery can acquire additional flexibility by rearranging its operations (US refineries go through seasonal reconfiguration twice a year), and / or modifying the mix of crudes it buys. The ability to modify a production profile is often limited and varies from refinery to refinery. The technological flexibility of a refinery can be enhanced in the long-run through investments in additional specialised units, which will be described below.

It is important to recognise that, while any refinery has limited ability to modify its production profile, the industry collectively has much more ability to adjust to fluctuations in demand through changes in the utilisation