The change in the pricing formula for refinery feedstock has once again become one of the important topics in the oil industry and capital market. If this decision is made with the aim of reducing government costs and managing resources, it may put more pressure on refinery profits in the short term, but in the long term, its effects will return to the government and the country's fuel supply chain.
Pricing Challenges and Their Impacts
The main issue is not defending rent or unconditional support for refineries; the fundamental question is to what extent the pricing policy should pursue the short-term interests of the government and to what extent it should consider economic stability and the investment capacity of the refining industry. Oil prices fell in early trading on Monday as preliminary Kpler data showed that crude oil flows from the Strait of Hormuz decreased in the final days of September.
Read more: New Attacks on Oil Tankers in the Strait of Hormuz and IRGC's Threat to Return the Ships
Economic Chain Analysis and Investment Impacts
Simply comparing the price of feedstock or refinery profits without considering the entire economic chain does not provide a complete picture of government benefits. If the goal of changing the formula is to reduce government debts to refineries, the potential costs of this decision in the coming years must also be calculated. Reducing profit margins and limiting the financial resources of refineries could affect their ability for major repairs, modernization, and the implementation of development projects.
The refining industry requires heavy and continuous investment. Refineries face costs for maintenance, upkeep, equipment procurement, and process improvement projects to maintain their production capacity. If pricing is such that it reduces the economic return on investment, the incentive for new investments will also decline.
This issue not only concerns refinery shareholders but also impacts the production capacity and operational capability of the industry. A significant portion of refinery shares is held by pension funds and equity funds, so severe changes in the profitability of these companies can affect a wide range of stakeholders.
Ultimately, any decision regarding the pricing formula for feedstock must be made with a view to the entire oil chain up to the product. Weakening the refining industry is not just a matter of profit for a few listed companies and can directly relate to the country's ability to produce and supply the necessary fuel.
Read more: Advantage Tankers Adds Two New LR2 Oil Tankers to Its Fleet · Solstad Maritime Signs New Contracts Worth $30 Million
