What it is:
An oil refinery is a factory that turns crude oil into marketable products such as gasoline, jet fuel, lubricants and heating oils.
How it works (Example):
Refining oil is complicated, but generally the idea is to heat the crude oil, separate it out, and add things to the separated portions to formulate products.
Why it Matters:
In the business world, refineries are important because they control the production and accessibility of oil. For example, when a refinery shuts down, a whole region of the country may have a shortage of a certain kind of fuel, causing prices to spike. Though the fuel could be shipped from other refineries, doing that is expensive and takes time. For these reasons, commodities traders and virtually every other investor who knows how oil prices affect every industry (from food to airlines to autos) pay attention when a refinery is shut down for maintenance or emergencies. The fewer refineries are open, the more expensive oil tends to become.