Refinery Upgrades Not Adding Capacity, Journal Reports

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ith oil at record prices, U.S. refiners are upgrading their facilities but are not adding more capacity, and the upgrades will not necessarily lead to retail fuel price reductions, the Wall Street Journal reported Thursday.

Instead of expanding capacity, refineries are investing in equipment that can process cheaper crude oil and refitting their facilities to meet new clean-fuel requirements, the paper reported.

The lack of new capacity could keep upward price pressure on refined fuels such as gasoline, diesel, heating oil and other end products, the Journal said.

Tight refining capacity has been a factor in pushing up retail pump prices, with refining making up about 18% of the cost of a gallon of gasoline. Crude oil prices make up 54% of the cost, the Journal said.

U.S. refining capacity is expected to grow by just 0.8% annually from the start of this year through 2007, the paper reported, citing Friedman, Billings, Ramsey, a Washington, D.C., investment bank.

Crude oil futures prices hit a record intraday price of $62.50 Wednesday and closed at a record $61.89 on the New York Mercantile Exchange on Tuesday.

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