Skip to main content

Refiners Cut Output

U.S. refiners may continue to produce gasoline at a hefty rate through peak summer driving season despite a precipitous drop in profit margins, according to oil industry analysts.

Many refiners, including the nation's biggest independent San Antonio-based Valero Energy Corp., have locked in this spring's sparkling returns for gasoline by hedging, or buying long-term crude oil contracts and selling gasoline contracts at a favorable rate, Reuters reported.

The move blunts a rapid decline in face-value refining profit margins since late April, allowing the companies that hedged to continue to produce gasoline at the current breakneck rates instead of reduce output. Profit margins, the money a refiner can make distilling a barrel of crude oil, have fallen below break-even in many U.S. regions, after having hit record highs of roughly $11 in late April, the report said.

The squeezed margins are due to a 40-percent drop in gasoline futures prices on the New York Mercantile Exchange, from $1.17 a gallon to roughly 73 cents a gallon, and continued strong crude prices of more than $27 a barrel.

So far, only a handful of companies have restricted their refining output as a result -- El Paso cut 11 percent from its New Jersey plant, Citgo cut 3 to 5 percent nationwide, and Tosco Corp. cut 15 percent in Pennsylvania.

At least one company, Motiva Enterprises LLC, a Houston-based joint venture company of Texaco Inc. and Shell Oil Co., does not plan to scale back the crude output processed at its four U.S. refineries, said Chief Executive Roger Ebert. "We have no intention of reducing crude runs at this time," he told Reuters. Motiva's refineries have a combined capacity of about 825,000 barrels a day.

Nonetheless, U.S. refiners produced a record 8.6 million barrels per day in the last week of June, with refining capacity up 2.4 percent at 96.6 percent, according to the latest American Petroleum Institute (API) report.
X
This ad will auto-close in 10 seconds