Posted on 11/23/2009 5:20:55 AM PST by thackney
U.S. refiners are expected to keep output at historic lows through the beginning of 2010 as they wait for the economy to recover enough to revive demand for gasoline and other fuels.
Refiners are keeping runs below 80 per cent of capacity by extending the scope and length of planned seasonal maintenance. They are even shutting plants in hopes of whittling down brimming diesel and gasoline stocks to keep profit margins in the black.
Valero Energy Corp., America's biggest refiner, hammered home the extent of the industry's weakness on Friday when it said it will close its 210,000-barrel-a-day refinery in Delaware City, Del.
The drastic move followed Valero's pledge to cut system-wide crude runs in the current quarter to as low as 73 per cent, if necessary, to maintain profit margins.
"I think the refiners are in for some real challenges profitability-wise. They are going to keep offline as much as they can because the spreads are narrow," said Jason Schenker, president of Dallasbased Prestige Economics.
Margins have shrunk considerably since 2007, when oil demand peaked. On the Gulf Coast, the 3-2-1 profit margin, which measures the spread between the cost of crude and price of wholesale petroleum products--tumbled to $8.10 US per barrel of crude in the third quarter of this year from$27.30 US in the second quarter of 2007.
Pure-play refiners are on the front line of the cuts.
According to Barclay's, Valero's third-quarter realized margins lagged the industry index in all regions except the Northeast. Sunoco Inc. said last month it will idle its 165,000-barrel-a-day Eagle Point, N.J., refinery. With Valero's Delaware City closure, about a third of the region's capacity will be off-line by year-end.
"Refiners are getting a seven to eight per cent yield with the 3-2-1 crack. Slow but not bad by historical measures," said Stephen Schork, editor of the Schork Report, of the nation's margins overall.
Larger integrated companies-- like ExxonMobil Corp., ConocoPhillips and Marathon Oil Co.-- have less leeway for deep cuts because they need to process the oil they produce.
"The integrateds are going to keep units off as long as possible, but at the end of the day, it hurts them," Schenker said.
How long refiners will have to keep shaving runs is up for debate as economic signals remain mixed.
"The economy is not out of the woods yet. Refiners are keeping runs on the low side and hoping," said Tom Bentz, senior commodity analyst with BNP Paribas.
"Demand is still not there."
Percentage operations of capacity is down, but then total demand is down and we went through quite a bit of expansion of existing refineries the last years.
Is having excess capacity really a reason to critize? Imports have fallen from earlier in this decade.
I wonder if it ever occurred to these people that making fuel more affordable might help a struggling economy? And if the economy does a bit better perhaps more fuel will be needed. They’re just like Congress critters, they have no ability to see beyond the immediate.
A company like ExxonMobil actually buys more crude oil than they produce themselves. So much oil is controlled by Nationalized Oil Companies like Saudi Aramco, National Iranian Oil Company and Petróleos de Venezuela that Investor Owned companies have little impact on the market.
the electric car is coming
The economy should reset to 1990 levels on ass goods and services. I figure sooner or later it will.
Great! I like the idea of coal powered cars.
Oh great. Never have to pay for fuel again.
We also have free healthcare coming soon.
Pretty soon, we will all be rich. (/s)
Demand for gasoline is falling with the 0bama depression yet gasoline prices keep rising (thanks falling dollar).
And it looks as if I will have to pay for one whether I want one or not.
2009 US gasoline demand is up slightly from 2008 but still down from 2007.
You can only store so much crude or finished product so at some point the wells will have to be shut in or at least reduced in flow quite a bit it seems to me.
Also see last two charts of gasoline and distillates (Diesel & Fuel Oil) posted above.
re: The refinery operations are really a small impact on prices
I have heard that but don’t understand if that’s so then why do they make any attempt to control production and output? I’m not real swift on these things, I’m not being a smarty pants!
Demand of refined products has fallen. If they do not back down the production, we would run out of places to store it.
Click any picture for supporting data.
RE: Valero Delaware City Plant
The local paper claimed Valero was loosing $1 million a day running the plant. (which is designed for heavy sour crude)
When they shut the plant down, they didn’t just send home the operators, they sent home the repair contractors who were working on the plant. They were given 20 minutes to pick up their tools and get out the gate.
again, acording to the local paper (wilmington News Journal) The plant isn’t being idled, it is being decomissioned perminantly.
better than buying oil from
ragheads
More info here:
Delaware refinery shutdown illustrates industry woes
http://www.chron.com/disp/story.mpl/business/energy/6731116.html
My apologies, I have a difficult time garnering information from charts. I think it’s a genetic thing, I’ve never been able to visualize the info they are presenting. Your explanation makes perfect sense though.
Thanks!
one of the few things we need to be concerned about in the 2010 cycle is stupid short-sighted thinking by executives in a few industries (oil and credit cards in particular) that will give the Dems an opening to campaign on a Populist Jihad.
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