By Robert Campbell NEW YORK, April 5 (Reuters) - Delta Air Lines is reportedly considering a bid for ConocoPhillips' shuttered Trainer, Pennsylvania refinery. News perhaps more suitable for April 1, but if true, an amazing, and baffling, proposal. A source familiar with the negotiations confirmed the talks on Wednesday. Delta and Conoco both declined to comment. Leaving aside the thorny questions about Delta management's ability to efficiently manage a business they've never before been in and one that has cost previous owners tens of millions of dollars in losses, the transaction itself seems wrong-headed. For one thing an oil refinery, much like an airline, is structurally short oil prices. Buying a refinery will actually increase Delta's oil price exposure. After all, a refinery has to go out into the market and buy crude with the hope of recovering its costs and earning a profit by passing the products on to its customers. Not surprisingly a considerable amount of the business of an oil refinery revolves around trying to control these risks. Delta already tries to cover its own oil price risk with hedges. But once it has a refinery its hedging program will have to get far more complex. And here's the second problem with this proposal. Unfortunately you cannot just put oil into a refinery and get out the products you want. Delta might find itself to be able to make a fair bit of jet fuel, and, indeed, would probably attempt to swing distillates production away from diesel and into the jet pool. But there is a limit to these efforts. A 185,000 barrels per day refinery like Trainer necessarily produces far more gasoline and diesel than it does jet. So Delta will be stuck disposing of that unwanted fuel. WALL STREET REFINER The funny thing here is that Delta will probably seek to outsource both its crude oil sourcing and oil products sales as other small refiners do. The main players in this space are Wall Street firms and the oil majors, the same companies that probably arrange Delta's current, and presumably unsatisfactory, hedges. But returning to the proposal it is even harder to see how this might be a better hedge than its existing programs. Trainer was shut down by ConocoPhillips because it couldn't compete with other refineries. In a brutally competitive industry plagued with overcapacity --something, incidentally, airlines should know all about-- Atlantic basin refiners have little individual control over margins. With many of the plants that were supposedly to be shut down this year actually getting a second lease on life, reviving Trainer may well only result in tougher competition. Indeed the entry of a big player into the market biased towards jet fuel production will probably only result in regional refiners cutting jet fuel production and directing arbitrage shipments elsewhere. So why not make it simpler? Why not just buy an upstream oil producer? Probably because a company that produces as much oil as Delta buys --reportedly 250,000 barrels per day-- is too expensive. Many airlines have tried, and failed, to control their oil price exposure by deepening their presence in the physical market. Adding even more complexity to the hedge is unlikely to result in any better results.