Questions of refinement

Valero is taking over Premcor and in the process becoming the largest oil refiner in the country, with a capacity of 2.5 + 0.8 = 3.3mm barrels of oil a day. (The US consumes about 21mm barrels a day, so it's a pretty big chunk). Bigger even than Exxon. Pretty impressive. Not a good sign for us consumers, though, I would think: after the deal, there will only be 5 refining companies in the country, I hear -- a small enough group for price collusion to become very easy to do.

Right now, it's a very profitable business. "Crack spreads" -- the difference between the cost of a barrel and the price you can the resulting refined products at -- are apparently around $14 a barrel, which is surely about as high as it's ever been.

Here's a strange fact: no new refineries have been built in the US since 1976. This despite the fact that the industry is chronically close to 100% capacity (as you can imagine if you think about what our consumption has done since 1976). The environmental hurdles are, apparently, just too high. Makes you wonder, though, doesn't it? I mean, the oil industry is usually pretty good at getting what they want. Do you think it's possible they actually don't want any new refining capacity? They'd rather have $14 crack spreads perhaps. You'd think, too, they might make up the shortfall by building in Mexico, but that hasn't happened either... Odd.

I keep hearing, every time crude oil prices go up, that it's partly caused by "lack of refinery capacity". This is a proposition I don't understand. I mean, if refineries are too busy to accept more oil, wouldn't that have the opposite effect? Surely it would decrease the demand for oil, not increase it. If anybody out there knows why, I'd like to hear it.