Delta Airlines Considers Buying an Oil Refinery (DAL, COP, SUN, HES)

The reason these refineries are for sale is because they are — most of the time — money-losers. Except for Hovensa, all are capable of refining only Brent-quality crude, which is currently the most expensive crude in the world, and the international benchmark for pricing other grades.

Today, Brent costs about $123/barrel. From a 42-gallon barrel of crude at a more or less standard refining ratio (called the ‘crack spread’), a refinery actually produces nearly 45 gallons of refined products (that’s called ‘refinery gain’). Of that production, about 3.5 gallons are kerosene — aka, jet fuel.

The current cost of a barrel of jet fuel is $139 according to the International Air Traffic Association. If it becomes a refiner, the only thing Delta can wring out of that cost is profit, which is currently non-existent in east coast refineries. That’s why real oil companies are closing the refineries.

Of course Delta can sell all the other products — gasoline, diesel fuel, etc. — but then it needs either to contract that out or have a staff to manage the sale. No savings there.

There’s an old joke that the way to make a small fortune in the entertainment business is to start with a large fortune. The same thing is true of the refining business.

Paul Ausick