How are you going to spin this on us GL?

[Andy]

You and your dad still don't think the refinery deal was a good one? Oh, that's right, oil will only go down in value now, and never go back up....

Even your dad would have hedged oil a few months ago when analysts were thinking gas would go $5 a gallon and Isreal was threatening Iran. Everyone hedged a bit except USAir, and we all know USAir can be "interesting" when it comes to their lack of hedges. Sometimes they win, sometimes they don't, just like those who hedge. Say hi to your dad for me!


Bye Bye---General Lee

Buying a refinery has nothing to do with the price of oil. It's a crack spread hedge.
The Trainer, PA refinery was IMHO a poor choice due to the fact that it can only process light sweet. Unless the refinery undergoes major modifications, it can't process heavy sour.
In addition, Delta plans to optimize Trainer's production to maximize jet fuel production - which is likely not the most profitable (or more correctly the least unprofitable) way to run the Trainer refinery.


As for losing money on hedges, I agree that every airline that hedged has lost money on them. However, it would have been very risky to be naked hedges. USAirways is the only winner in this regard; every other airline is going to have large writedowns on their hedges.

 

[Diesel-9]

Delta just made a deal to buy crude from the Bakken reserve. I read where 30 % of a barrel of oil gets refined into jet fuel. The other refined products can be sold/exchanged for other fuel etc... Think this will be a smart business decision soon. Projected to up and running in the spring of next year I think. The conservative estimate is it will save $300,000,000 annually in crack spread cost. Will pay for itself in its first year.

 

[redflyer65]

You better hope all that 'savings' covers the cost of transporting that product from N. Dakota allll the way to Philadelphia. That's a long way to transport Bakken Shale for a chance at a profit.

This refinery is in the wrong location, that's why it's taken a loss year over year by people that actually know how to operate in this business. Gonna be interesting to watch.

 

[Andy]

Delta just made a deal to buy crude from the Bakken reserve. I read where 30 % of a barrel of oil gets refined into jet fuel. The other refined products can be sold/exchanged for other fuel etc... Think this will be a smart business decision soon. Projected to up and running in the spring of next year I think. The conservative estimate is it will save $300,000,000 annually in crack spread cost. Will pay for itself in its first year.

NFW. Crack spread has declined by ~$8/bbl since April.
That $300M annual 'savings' (NOT a conservative estimate) was based on much higher crack spread. And that was 'guesstimated' by DAL's CEO Richard Anderson in April; not exactly an unbiased source of guesstimates. See link below.
Trainer has a max capacity of 185,000 bbl/day; 67,525,000 bbl/yr.
An $8 crack spread decline equates to a reduction in annual savings of $540,200,000/yr.

April's crack spread was near a 5 year high.

http://www.nytimes.com/2012/05/01/business/delta-air-lines-to-buy-refinery.html

 

[SWA Bubba]

NFW. Crack spread has declined by ~$8/bbl since April.
That $300M annual 'savings' (NOT a conservative estimate) was based on much higher crack spread. And that was 'guesstimated' by DAL's CEO Richard Anderson in April; not exactly an unbiased source of guesstimates. See link below.
Trainer has a max capacity of 185,000 bbl/day; 67,525,000 bbl/yr.
An $8 crack spread decline equates to a reduction in annual savings of $540,200,000/yr.

April's crack spread was near a 5 year high.

http://www.nytimes.com/2012/05/01/business/delta-air-lines-to-buy-refinery.html

Maybe I'm thinking about something else, but in my mind, a large crack spread is NOT a good thing.

Bubba

 

[Andy]

Maybe I'm thinking about something else, but in my mind, a large crack spread is NOT a good thing.

Bubba

A large crack spread is not a good thing. It's essentially a charge added to the final product. A $33.60 crack spread adds ~80 cents/gallon to the retail price of gasoline. A $16.80 crack spread adds ~40 cents/gallon to the price of gasoline.

April 2012's crack spread got up to ~$35/barrel. Most of the last 5 years, the crack spread has been less than $15/barrel. There's a reason why oil companies are closing or selling refineries.

 

[Bake]

Andy, I think bubba was referring to a different type of "large crack spread". Try to follow the humor.

 

[Andy]

Andy, I think bubba was referring to a different type of "large crack spread". Try to follow the humor.

:laugh: Dayumn. That was funny. And I now have a horrific image burned into my brain.

 

[FlyinGuy]

She is not large, just big boned!!!

 

[Ky.BrownBourbn]

:laugh: Dayumn. That was funny. And I now have a horrific image burned into my brain.

You got to look on the bright side...A Large Crack Spead may be better than No Crack Spread!

Is the Crack Large or the container?

KBB

 

[chjack]

to each his own, i prefer a large crack spreadimp:!!