Crude Oil Pricing In The Eastern Region
Authors: Perrine William E. 
Published: December 2007

Perrine, William E., Coordinator of Crude Oil Perrine, William E., Coordinator of Crude Oil Supply and Transportation Ashland Oil and Refining Company

CRUDE OIL PRICING IN THE EASTERN REGION

It is indeed a pleasure to be able to visit with you here in Columbus today. Frankly, though, I must admit that I face the topic assigned to me - CRUDE OIL PRICING - with a great deal of apprehension. In the first place, in the anti-oil atmosphere that exists in the halls of government today in this country, any representative of a petroleum corporation hardly dares to mention the world "price" outside the friendly confines of the head office. Secondly, the very nature of this particular group gives some cause for concern. I am sure that most of you, if asked to comment on pricing of crude oil in this (or indeed any) region, would answer quickly "Prices aren't high enough." Now that we both recognize these two impediments which are facing me, I feel sure that you will more readily accept one of my arbitrary ground rules which gets around both. I merely decline to say anything about absolute prices, but will touch the differences between crudes and how this and prices, but will touch the differences between crudes and how this and several other factors contribute to a price level determination.

First, it would seem appropriate to caution you that you must put some of the things that I am going to say in their proper perspective. Different people view the crude oil situation in this country today very differently, depending upon where they happen to sit. This was greatly evidenced this summer by the diversity of opinions submitted to the Presidential Task Force studying the increasingly complex Oil Import Program. To appreciate the view from where I sit, you should know at least a little bit about my company-Ashland Oil.

From Ashland's standpoint, you could not have chosen a more convenient spot for such a gathering, for Columbus, Ohio is in the heart of our refining and marketing area. Ashland is currently operating six refineries, four of which are either in Ohio, (at Canton an Findlay), or within shouting distance of the state's borders (Catlettsburg, Ky., and Freedom, Pa.). The other two plants, at Louisville, Ky., and Buffalo, N.Y., are also not too far from the friendly confines of the Buckeye state. Our gasoline marketing area is bounded roughly by the Mississippi River on the West, the states of Tennessee and Virginia to the South, the Great Lakes on the North and the East Coast from New York to Virginia.

A characteristic of Ashland that is probably of more interest to this group is the source of her crude oil supply-and the degree-or indeed lack of it-of her self-sufficiency in crude. Our six refineries are capable of chewing up about 265,000 B/D of crude oil daily. During the coming year, we expect to average about 230,000 B/D of crude runs, even with several planned shutdowns for cleaning an revamps. Against this requirement, the company's daily production of crude oil in the U.S. and Canada is approximately 18,000 B/D. This gives us a self-sufficiency ratio in the order of 8%. Thus we have to buy 92% of our crude oil requirements from others, mostly independents. Most of our purchases are from our area (Illinois Basin, Ohio) and Louisiana.