And what we got for those cheap prices then are the high prices today. There was no money to keep up much exploration, new drilling, expansions and capital improvements. The surplus margin fell so low that events like Katrina were devastating to available supply. And when the Asia economy picked back up the demand pushed up against the available supply. The result was:
Many oil companies were able to get by on those cheap prices. But they were not building for the future, and many others had to sell out stock or reserves or facilities just to survive. Several had to sell out all together.
The reality is those cheap prices were not cheap for us in the long run. Oil fields deplete, water cuts go up in time, H2S tends to build up in some fields as they age and produced water is re-injected. If a company is not reworking wells, drilling, exploring and building facilities, oil production is going to decline after a few years.
Now the refineries are in the same boat as production. The last couple years there has been some expansions. In other countries a few new refineries are being built. Some really big expansions are in design right now, major equipment being specified and soon to be ordered, construction being planned. But this spring the US got caught. Margins were very tight, quite a few expansions/upgrades were being planned during the winter-to-spring switch so stocks were built up higher than normal. A few extra unplanned outages and a higher than expected demand resulted in:
Supply and Demand are still the biggest impact in this market. The good news is are those profit margins are still around 10%. In this time of high prices are lots of investment back into the industry. Dollars are pouring into exploration, expansions and new infrastructure.
There still is a lot of competition in this market. More than 60 different companies have US refineries, some little ones are still competing. A couple hundred companies produce oil, import oil or import refined product. If we had a government that didn't tie their hands by keeping resources unexplored, taking 7 years to get a permit to "start" a new refinery, a multitude of different gasoline blends so product is not available to move to a different area when a refinery is down, then our prices would be lower.