Learn Why The Downstream Sector Is Going Strong In Spite Of Low Crude Oil Prices

• Tweet

• Tweet

The downstream sector includes the transportation of oil from the place of extraction and the refining of crude oil at oil refineries. The transportation of crude oil is achieved with the help of pipelines and trains. The refining of crude oil is essential to make it usable for the purpose of heating homes and providing fuel for vehicles. After the refining process is complete, the oil that is ready for consumption is then transported back to gas pumps and other places through trucks. The downstream sector consists largely of pipeline companies, refiners, railways and gas station chains. It has been observed that while the upstream sector has been adversely affected due to the collapse in crude oil prices, the downstream sector is still going strong. Read this article to find out why.

The Downstream Sector Is Running Full Steam

Oil production continues even though oil prices continue to remain low. This is because oil producers are struggling to repay their loans. However, the oil refining industry is taking advantage of low crude oil prices, as it depends on oil as a raw ingredient for its operations.

Don Pittis said in a recent article:

“The downstream sector is running full steam. Existing pipelines are full and pipeline companies want to build more. The railways move so much oil, farmers complain their crops are being left behind. At the same time, refineries are operating at 96 per cent capacity, which is probably about as close to full capacity as they get.

And despite a staggering profit margin, the downstream sector just can’t seem to produce enough. Of course that creates a shortage of gasoline, pushing prices higher.”

The shortage of gasoline has increased the demand for oil refineries to operate at full capacity.

Refineries Resilient To The Downturn

The shortage in the number of oil refineries in responding to the need for processing the crude oil produced can be attributed as the top reason for refineries remaining resilient to the downturn. Moreover low crude oil prices allowed downstream producers to make a profit by buying crude oil at cheap prices and selling gas at expensive rates.

Jacob Pramuk said in a recent article:

“But refiner stocks like Tesoro and Valero have proven resilient, rising 60 and 29 percent in the last year, respectively. The strength in those names may continue in an “oversupplied” market hit with a shortage of refiners, said Roger Read, senior energy analyst at Wells Fargo Securities.”

Refinery stocks have registered significant growth over the past year, indicating that the downstream sector is doing well. Downstream producers could register profits due to the low crude oil prices, enabling them to sell gas at a higher price. The shortage of refineries in meeting the demand for refined oil has helped the downstream sector to keep going strong, in spite of low crude oil prices.