As US Refineries Shut Down, Questions Weigh

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Valero (VLO) had refineries in Houston and Krotz Springs, La., down for two weeks this month. Chevron (CVX) closed its El Segundo, Calif., refinery. That could be down for two months. ExxonMobil (XOM) will also idel some of its refining capacity for service.

According to The Wall Street Journal, "current capacity use levels don’t bode well for gasoline prices."

Elected official in Washington are likely to take all of this badly. Gas prices are high and the people who vote for or against them are upset. The American consumer is always worried that Big Oil is messing with them to get higher prices and bigger profits.

There is little question that refineries need maintenance like any other plants. The big issue is whether so many need to be refurbished at once.

The federal government is very good at giving oil companies tax breaks for drilling in deep water and charging excise taxes when profits are too high. Consumers and investors have to wonder where the Feds are when it is time to pass out incentives for keeping refinery capacity high.

Refiner’s margins have gone from $.40 a gallon to $.80 over the last year. That seems a bit rich. If the government were to trade tax breaks on refined fuels for a little more capacity, the oil companies could still make money. But, it would not come from the dollar spent at the pump.

Douglas A. Mcntyre can be reached at douglasamcintyre@247wallst.com. He does now own securities in companies that he writes about.