Optimal crude oil procurement under fluctuating price in an oil refinery

Ruoran Chen, Tianhu Deng, Simin Huang and Ruwen Qin

European Journal of Operational Research, 2015, vol. 245, issue 2, 438-445

Abstract: In this paper, we study the optimal procurement and operation of an oil refinery. The crude oil prices follow geometric Brownian motion processes with correlation. We build a multiperiod inventory problem where each period involves an operation problem such as separation or blending. The decisions are the amount of crude oils to purchase and the amount of oil products to produce. We employ approximate dynamic programming methods to solve this multiperiod multiproduct optimization problem. Numerical results reveal that this complex problem can be approximately solved with little loss of optimality. Further, we find that the approximate solution significantly outperforms a set of myopic policies that are currently used.

Keywords: Uncertainty modelling; Risk management; Refinery operation; Procurement; Fluctuating price (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:245:y:2015:i:2:p:438-445

DOI: 10.1016/j.ejor.2015.03.002

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