BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS. This publication is available on the BIS website (www.bis.org).

No abstract

Refiners face a key economic trade off among flexibility and cost strategy in order to attain strategic alignment (Theodorou, 1996;Theodorou & Karyampas, 2008). The tradeoff is whether to pay a price premium for higher grades (procurement rigidity) or accept to pay higher capex and refining costs in order to take advantage of lower grades (procurement flexibility). Costs and payback periods must be weighed against anticipated prices and the projected differential or price spread among oil products. Flexibility strategy refers to the alignment of operations to the continuous changes of crude oil prices and the prices of refined products. Thus, crude slate and refinery's complexity must be aligned with the states, regimes reflected in the prices of both crude oil and the products of distillation. Crude oil prices can determine the states or regimes of the market and play a very significant role in pricing and energy policy. Refiners have limited range of flexibility in setting the gasoline to distillate production ratio. According to refinery economics and shifting yields, diesel along with gasoline is of primary focus as high value lights versus residuals (lowest-value by-product).Moreover, the significance of the price states, regimes is derived by the oil's market share and its mark-to-market use in energy contracts, as it is applied in the pricing formulas of most fossil fuels and energy products (Jammazi &

No abstract