Yet refining capacity keeps going up, and the marginal gallon of refined product (mostly gasoline) is now imported. You need to keep an eye on domestic capacity, offshore capacity, utilization rates and on shipping.

The EIA should be your first stop. http://www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html

Used refineries currently sell for about 30 to 50 percent of the cost of building a new one

The last big transaction I know is Valero’s sale of its 160k-bpd Lima refinery — an older one that could stand some upgrades — for $2B. A few years ago Reliance built a brand-new 600k-bpd refinery — for $3.5B.

Yes, India is cheaper than the US, but not that much cheaper. I do not know how much you’d pay in the US to build one, but if I had to bet, I’d guess you still have to pay slightly more than buying an old refinery and upgrading — but not much.

If you think I’m wrong, ask yourself what Valero, who was an aggressive buyer of refinery assets back when they really were available for under 1/3 of replacement cost, is doing selling them.

it sounds to me like there is very little wrong with refining industry fundamentals

There is very little wrong with refining-industry fundamentals. Price is another thing.

Take FTO. Even after a healthy drop off its highs, it’s pushing $4B market cap for capacity of 162k bpd. Valero sold that capacity for half that. Either Valero took way too low an offer, or refining fundamentals improved radically in just months, or newer equipment in a better PAD is worth 2x older stuff elsewhere.

FD: short FTO futures, no other refiner positions (though I have considered an offsetting VLO long now and then).