Although margins for US refineries plummeted between the first and second halves of 2007, a series of mergers and acquisitions are expected to take place during 2008. Large refiners and oil companies may begin selling their facilities in order to protect their bottom lines as prices for oil reach all-time highs. Smaller refiners, international firms and new entrants into the refining business are among the potential buyers. While the refining industry is generally regarded as cyclical in nature, downward swings in the future are not expected to be as low as previous declines, such as the one recorded in 2003. In addition, limited refining capacity is predicted to boost profit margins during the winter months and in the case of possible supply disruptions. However, margins may suffer from reduced gasoline demand due to high prices and the larger amount of ethanol-blended gasoline beginning to come on the market. Ethanol production is expected to reach 400,000 barrels a day by 2009, which could effectively replace the gasoline produced by three large refineries.

Source: Associated Press