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HollyFrontier (HFC) is a pure play mid-continent oil refinery with five main refining assets. While HollyFrontier is the subject of this essay, let us first describe some important industry fundamentals before moving forward.

Industry Situation

Refiners are essentially the intermediaries between two huge markets, which have two different price dynamics: (1) the crude procurement market and (2) the consumer market. A refiner's variable costs are dictated by the crude feedstocks it sources, but the revenues are set, generally, by the larger macro environment of global oil consumption. A survey of the North American refining industry will enforce the notion that geographic location is of the utmost importance -- that is, if one wants a cost...

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