Refiners typically measure margins at several levels to measure different dimensions of performance:
- Gross margin - This is the difference between the value of the products made and the feedstock (crude and other feed) used to make them. This is typically used to measure the effects of changing market conditions or differences in yield across different refineries
- Variable cash margin - This subtracts all variable costs (costs associated with running a single unit of feedstock, typically including energy and catalyst and chemicals costs) from the gross margin. This is a measure of the value of marginal units of production and is useful for setting optimal short-term run levels and for evaluating crude and product slate options as part of refinery optimization
- Cash operating margin - This subtracts all fixed cash costs (labor, maintenance, and materials) from variable cash margin. This is a measure of the cash contribution to the business from continuing to run the refinery on an ongoing basis
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