Oil processors reap windfalls

Utah's oil refineries are buying crude oil at bargain prices and reaping huge windfalls as the state's gasoline prices continue to remain among the highest in the nation, according to a Texas investment adviser.

A state investigation found earlier this month that Utah gasoline retailers were gouging the public. However, John Jurrius, a financial adviser to the Ute Indian Tribe, says the state's explanation is only part of the story.

He said black wax oil — which is produced in the Uinta Basin on Ute Indian lands — is being purchased for about $46.76 a barrel, or about $13 less than the October average of $59.26 for oil traded on the New York Mercantile Exchange, according to a Flying J Co. Web site.

The lower prices paid for Utah's black wax oil are primarily a result of limited refinery capacity, Jurrius said, as Utah refiners choose to process Canadian oil rather than Utah's oil.

"That's not good for the state," Jurrius said. "And I think the state ought to be concerned about markets that aren't promoting state assets. This pipeline from Canada that was sold as being good for consumers is shutting down your local economy."

About 30 percent of Utah's crude oil comes from Canada, 15 percent from within the state and the rest from Colorado, Montana and Wyoming, according to the Utah Petroleum Association. Roughly 17,000 barrels, or 10 percent of the total oil refined each day by Utah refiners, is black wax oil.

Calls by the Deseret Morning News to Lee Peacock, president of the Utah Petroleum Association, which represents Utah's five refineries, were not returned.

The lower price being paid for black wax oil has prompted Houston-based Newfield Exploration Co. to discontinue operations at 165 wells in the company's Monument Butte Field in eastern Utah. In addition, more than 400,000 barrels of oil already produced by the company will sit as inventory in the field, according to a news release issued last week. Newfield Exploration said it elected not to sell the 400,000 barrels of oil due to the lower prices being paid for black wax oil.

But while producers are curtailing production, refineries are posting record profits.

Dallas-based Holly Corp., which operates a 26,000-barrels-per-day refinery in Woods Cross, said in filings with the U.S. Securities and Exchange Commission that its refinery gross profits amounted to $22.37 per produced barrel in this year's second quarter, a 60 percent increase from $14.02 a barrel in the same quarter in 2005. Holly also operates an 82,000-barrels-per-day refinery in New Mexico.

Meanwhile, the oil producers in eastern Utah are losing value and income, Jurrius said.