Chevron Corporation Downstream The year 2015 was a year of margin contrast in the oil and gas industry. While it was a terrible year for the upstream companies due to the sharp fall in crude oil and natural gas prices, it was a year of strong margins for the downstream companies like Valero (VLO) and Phillips 66 (PSX) for the same reason. The glut of crude bringing down input prices for these firms while continued stable demand for gasoline and diesel has led to better crack spreads. The crack spread refers to the profit per barrel of oil that refiners earn from turning oil into finished products like gasoline, diesel, and jet fuel. But that was the reality of the last year only. This year hasn’t started up that well for the downstream business …show more content…
In 2017, jet fuel consumption is projected to rise by 20,000 b/d (1.0 %). The forecast distillate consumption could grow by an average of 60,000 b/d (1.6%) per year over the next two years. The production cut by major refiners like Monroe Energy (10 %) and Valero Energy Corp (25 %) will also help in bringing down the stockpiles at the refineries. Hence, the slump in prices of these products is soon to get reversed as shown in the above figures. We can also see that crude oil prices are not going to rise back at the same pace as the product prices are. Thus we should expect the margins at the downstream business widen again. Therefore, Chevron is very well placed to take good advantage of an increase in refining margins, as it has increased its downstream capacity. The company is now the largest producer of base oils, products that have got great future prospects as shown below: Additionally, the company is prepared to cater to the soaring gasoline demand in the Asia-Pacific region after upgrading its Singapore refinery by constructing a cogeneration plant and a gasoline desulfurization facility. This product dictates high margins which would bolster the overall downstream margins of the