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    Unrefined Times

    Major refiners struggle amid slumping margins.

    NEW YORK -- One day after Old Greenwich, Conn.-based Premcor Inc. announced layoffs of more than 100 non-union workers at two plants, a report by investment banking firm Salomon Smith Barney indicated what is now industry gospel.

    Refining margins are stuck in mud.

    High inventories of distillates have forced many of the nation's leading refiners, including Valero Energy Corp. and Tesoro Petroleum Corp., to slash production rates at their refineries in recent weeks. Meanwhile, average U.S. gross refining profit margins have fallen 9 cents to $3.71 per barrel, continuing a two-month sag in margins.

    "U.S. refining margins continue to be mired in weakness," according to the Salomon Smith Barney report.
    Depressed margins are spurring Valero to run its refineries at 84 percent in September. Last month, Tesoro reduced refining production by 15 percent due to poor margins and high crude oil prices.

    California refining margins made the steepest drop last week, falling nearly $1.00 to $5.76 per barrel. "Near term California fundamentals remain precarious due to narrow crude quality differentials and with light products inventories near seasonal record highs," the report said.

    Midwest refining margins were the strongest in the country, averaging $5.29 per barrel last week. However, margins declined 24 cents from the prior week "perhaps due to the end in the summer driving season.," the report reasoned.

    ABOVE: Valero's Ardmore refinery in Oklahoma.

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