Oil Refining Industry
Oil refining industries are of great importance to all countries that produce oil. Over the many years that they have been in existence, the oil refining industries all around the world have seen several ups and downs.
For two decades, around the 1970s to 1990s, a significant amount of cash was invested in this industry, but the market demand was quite low, mainly as a result of the Asian Financial Crisis and the oil shocks that occurred from 1973-4 and 1979-80. This resulted in an excess of refining capacity for global oil refining industries.
Today, the scenario is quite different when it comes to this industry. The demand from around the world for refined petroleum and other products is steadily increasing, but the surplus refining capacity of the oil refining industry is dwindling away quite fast. Therefore, the oil refining industry needs to focus on an additional capacity building so that it can successfully meet the demands of the world's growing market.
For oil refining industries to achieve additional capacity, they need some serious investment, and this causes a problem. The investment that the industry so desperately needs is not being reached because of how uncertain and risky investment returns have become in recent times. Even looking at the last three decades, one can find that the returns for investments in the oil refinement industry have been quite low. However, the good news is that lately, the rates of investment returns in this industry have been improving. Today, the general margin per barrel is at a level that is high enough to handle the capital cost, which is quite reassuring.
Still, not many companies are willing to invest their money in oil refinery plants because they tend to need about five years to become established enough. This long period of time means that investments in this industry are still slightly risky, and future margins might not be sufficient to cover the entire cost of the initial investment.
Surveys have shown that the World Crude Oil Refining Capacity is 83.1 million barrels per day. But in order to keep up with the increasing demand this capacity has to increase to at least 93 million barrels per day by 2010. If we do the math, it shows that the global oil refining industry needs to expand at a growth rate of about 1.8% per year. The only way this can happen is if the industry of oil refining becomes successful enough to gain enough investments from more than one investor.
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