PBF Energy 2013 Annual Report Download - page 61

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of on-road transportation fuels since 2011. Our RINs purchase obligation is dependent on our actual shipment of
on-road transportation fuels domestically and the amount of blending achieved.
Factors Affecting Operating Results
Overview
Our earnings and cash flows from operations are primarily affected by the relationship between refined
product prices and the prices for crude oil and other feedstocks. The cost to acquire crude oil and other feedstocks
and the price of refined petroleum products ultimately sold depends on numerous factors beyond our control,
including the supply of, and demand for, crude oil, gasoline, diesel and other refined petroleum products, which,
in turn, depend on, among other factors, changes in global and regional economies, weather conditions, global and
regional political affairs, production levels, the availability of imports, the marketing of competitive fuels, pipeline
capacity, prevailing exchange rates and the extent of government regulation. Our revenue and operating income
fluctuate significantly with movements in industry refined petroleum product prices, our materials cost fluctuate
significantly with movements in crude oil prices and our other operating expenses fluctuate with movements in
the price of energy to meet the power needs of our refineries. In addition, the effect of changes in crude oil prices
on our operating results is influenced by how the prices of refined products adjust to reflect such changes.
Crude oil and other feedstock costs and the prices of refined petroleum products have historically been
subject to wide fluctuation. Expansion and upgrading of existing facilities and installation of additional refinery
distillation or conversion capacity, price volatility, international political and economic developments and other
factors beyond our control are likely to continue to play an important role in refining industry economics. These
factors can impact, among other things, the level of inventories in the market, resulting in price volatility and a
reduction or increase in product margins. Moreover, the industry typically experiences seasonal fluctuations in
demand for refined petroleum products, such as for gasoline and diesel, during the summer driving season and for
home heating oil during the winter.
Benchmark Refining Margins
In assessing our operating performance, we compare the refining margins (revenue less materials cost) of
each of our refineries against a specific benchmark industry refining margin based on a crack spread. Benchmark
refining margins take into account both crude and refined petroleum product prices. When these prices are combined
in a formula they provide a single value—a gross margin per barrel—that, when multiplied by a throughput number,
provides an approximation of the gross margin generated by refining activities.
The performance of our East Coast refineries generally follows the currently published Dated Brent (NYH)
2-1-1 benchmark refining margins. For our Toledo refinery, we utilize a composite benchmark refining margin,
the WTI (Chicago) 4-3-1 that is based on publicly available pricing information for products trading in the Chicago
and United States Gulf Coast markets.
While the benchmark refinery margins presented below under “Results of Operations—Market Indicators”
are representative of the results of our refineries, each refinery’s realized gross margin on a per barrel basis will
differ from the benchmark due to a variety of factors affecting the performance of the relevant refinery to its
corresponding benchmark. These factors include the refinery’s actual type of crude oil throughput, product yield
differentials and any other factors not reflected in the benchmark refining margins, such as transportation costs,
storage costs, credit fees, fuel consumed during production and any product premiums or discounts, as well as
inventory fluctuations, timing of crude oil and other feedstock purchases, a rising or declining crude and product
pricing environment and commodity price management activities. As discussed in more detail below, each of our
refineries, depending on market conditions, has certain feedstock-cost and product-value advantages and
disadvantages as compared to the refinery’s relevant benchmark.