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Alon USA Partners, LP Message Board

  • ousaouparis ousaouparis Jun 11, 2013 10:00 PM Flag

    Crack spread

    Some people believe that ALDW and NTI have nothing to do with refining, but all the profits derive from the crack spread. I would advance that the efficiency or the Nelson Complexity Rating is very important in the refining profitability. It is true that ALDW and NTI are high volatility play. Using excel “STDEV” play you can calculate the volatility of stocks. Well ALDW has: 10 days 24%, 20 days 31% and 30 days 39% volatility rating. Today’s numbers were to be expected.
    There are many grades of crudes that are processed by refineries. But really certain refineries, which ALDW and NTI belong, are set up to maximize distilled products starting from grades of crude with important discount. WTS is discounted versus WTI, only a relative few can handle WTS. The other factor is the refinery location and the local market. When the refinery efficiency rating can process discounted crudes and the local market is in or near a viable retail market, crack spread is what maximizes profits.
    What makes ALDW, NTI, CVRR and a few others attractive is the increase US production of many grades of crude and the limited access to refining region such as GOM. This will not last forever; we are probably at the pick of the crack spread. The crack spread, I believe, will be the difference pricing between pipeline costs versus RR cost. This will be compounded but the crude delivery location. Until now the pipelines have always gone north/south, so the prices at GOM should go down. The crack at east or west coast should see be descent. Naturally refineries, such as ALDW and NTI, located such that pipelining or RR is not necessary, or at least limited will see a potential greater crack. The RR transport is, roughly, $16.00 to east/West coast and the GOM from Bakken, $9.00 on pipeline. The other variant is the US level of production crudes that are not standards. High Nelson rating refineries will outperform, they will be able to process off spec API crudes that will be heavily discounted.

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