Question

Congratulations! you have just been hired by refiners-r-us. as part of your initial training, you have been asked to analyze two crude oils that they are considering for refining operations. calculate the profit per barrel for each crude oil, crude x and crude y. the cost of crude x is $65 per barrel and the refining costs are $3.25 per barrel. the cost of crude y is $60 per barrel and the refining cost is $3.75 per barrel. which, if either, of the crude oils is profitable to refine at current prices?

Answer 1

The refining margin for crude X is $3.5 per barrel, and that of crude Y is $3.75 per barrel.

Since the Refining Margin for crude Y is higher, it is more profitable to refine at current prices. The reason behind this is that a higher refining margin means a higher selling price for that product.

We need to determine the refining margin for each of the products to determine which is more profitable to refine.

We use the following formula to determine refining margin

`Refining Margin = Total Value of the product after refining – Cost of crude oil`

`Refining Margin (X) = 3.25 [68.25 (65+3.25) - 65]`

`Refining Margin (Y) = 3.75 [63.75 (60+3.75) - 60]`