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[JP Morgan] Oil & Gas Basics

[JP Morgan] Oil & Gas Basics

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Published by: trop41 on Nov 07, 2012
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Crude oil is what gets pumped out of the ground. Very
little crude oil is consumed directly —it is a raw
material that has to be refined into other products, such
as gasoline and heating oil

Other products that are derived from crude oil include:
Jet fuel, diesel, residual fuel oil, naphtha, kerosene,
lubricants, tar, asphalt, petrochemicals, fertilizers,
and plastics

The difference between the price of a finished product,
such as gasoline, and the price of crude oil is often
referred to as the ‘crack spread.’A crack spread is a
very simplistic representation of how much money a
refiner makes by turning crude into products

A refinery ‘netback’is the crude price at which a refiner
breaks even, given the value of the finished product
slate minus other costs to the refiner such as transport
costs, refinery fuel costs, etc.

A refinery ‘margin’is essentially the refiner’s profit —
i.e. the value of the product slate, minus the cost of
crude inputs and other expenses

Source: JPMorgan Energy Strategy

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