Margins

Refinery margins are a measure of the value contribution of the refinery per unit of input. Typically this is per barrel of crude oil processed, but it could also include other feedstocks as inputs.

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

The Refinery Reference Desk includes content derived from our industry experts as well as from public data sources such as company websites. Nothing herein is intended to serve as investment advice. This material is based on information that we believe to be reliable and adequately comprehensive, but we do not represent that such information is in all respects accurate or complete. McKinsey Energy Insights does not accept any liability for any losses resulting from use of the content.



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