According to Lien (2011) changes in the oil prices have in the past relied on demand and supply. However, the most prominent source of the fluctuations is the type of crude available and the ability of the existing oil refiners to handle that type of crude as indicated by Zellner (2004). Normally, crude grades are categorized into light, medium and hear sour grades. Light and medium grades are easy to refine and expensive to acquire. As a result, refiners who utilize this type of grade incur limited costs in the process of refining of the oils, while the resultant margins are low owing to the high costs of raw materials.
McDonald, et al. (2005) observed that refiners who utilize heavy sour grade are treated to low raw material costs. However, the process of converting the crude to the final products is longer and more costly, both in terms of overheads and the type of investments required to handle the crude. It is also a complicated and time consuming process to changeover from refinery of heavy-sour grade to the other types and vice versa, thereby making it a tradeoff in terms of costs and revenues. Most oil refiners, especially new entrants have found it possible to start from refinery of light and medium grade and finally graduate to heavy-sour type
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