U.S. Refiners Cut Oil-Processing Rates, Analysts Estimate: Energy Markets

U.S. refiners probably cut back on crude-oil processing last week as profit margins sank to the lowest level in five months, a Bloomberg News survey showed.

Refineries probably ran at 90.7 percent of nationwide capacity, down 0.5 percentage point from the prior week, the median of 17 analyst estimates showed before a government report tomorrow. The margin for refining oil into the motor fuel, based on New York futures prices, fell to $7.505 a barrel yesterday, the lowest level since Feb. 17.

Refiners increased operating rates to a 34-month high of 91.5 percent last month as the economy recovered and motorists purchased fuel for summer vacations. Refinery earnings have been weakening as crude oil prices increased 10 percent from the end of May compared with a 5 percent gain for gasoline.

“Margins are low and getting lower, and it’s going to be tough to see utilization rise anytime soon,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston.

U.S. gasoline demand in the four weeks ended July 30 averaged 9.41 million barrels a day, little changed from 9.4 million in the four weeks ended July 23, according to a report last week from the Energy Department.

Gasoline inventories probably gained 250,000 barrels from 223 million barrels to the highest level since the seven days ended April 30, according to the survey. Supplies have increased for the past seven weeks. Eighteen analysts responded to the supply survey. Nine anticipated a gain, seven forecast a decline and two said they were unchanged.

Gasoline

Gasoline stockpiles were 6.9 percent above the five-year average in the week ended July 30.

“You’re in the time of year when you usually see a pretty big drop in gasoline inventories as you get rid of summer grades, and we just haven’t seen that yet,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “I keep looking for them to reduce refinery runs to get that gasoline number to a reasonable number.”

Gasoline for September delivery lost 3.34 cents, or 1.6 percent, to settle at $2.0853 a gallon today on the New York Mercantile Exchange. Prices have risen 2.9 percent in the past year.

“People are worried about a repeat of 2008 and seeing negative margins for gasoline,” Larry said. “As we’re heading out of summer and into fall, people think that could happen.”

The gasoline crack spread fell as low as minus $7.36 in September 2008, when oil sold for more than $100 a barrel and demand dried up during the global economic recession. The crack spread fell 17.28 cents, or 2.3 percent, to $7.3326 a barrel.

Oil Inventories

Oil stockpiles probably fell 2 million barrels in the seven days ended Aug. 6 from 358 million the week earlier. It would be the second consecutive decline. Seventeen analysts forecast a drop and one an increase.

Supplies were at the highest level in 20 years for the last week in July in last week’s report and 8.9 percent above the five-year average.

Oil inventories at Cushing, Oklahoma, the delivery point for New York-traded futures, jumped 5.7 percent in the four weeks ended July 30 to 37.8 million barrels. That’s less than 1 percent below the all-time high set in May, according to the Energy Department.

“The fundamental picture is still pretty ugly, but that’s been the case for some time,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “The markets are still supported by some outside factors.”

Enbridge Pipeline

Enbridge Inc. shut a 190,000 barrel-a-day pipeline that supplies refineries in Ohio and Ontario with heavy, high-sulfur crude after 19,500 barrels leaked July 26. The pipeline transports crude from Griffith, Indiana, to Sarnia, Ontario.

Enbridge has stopped taking new injections destined for the pipeline, and its storage at Cushing is full, Gina Jordan, a company spokeswoman, said last week.

“The Enbridge line is going to start to affect some of the Midwestern refineries, and you’re going to see some of those refining rates come down as well,” Larry said. “The Enbridge line could be the kicker.”

Oil for September delivery fell $1.23, or 1.5 percent, to $80.25 a barrel. Prices have gained 14 percent in the past year.

Prices were little changed from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles decreased 2.19 million barrels to 352.7 million, the lowest level in five weeks. September oil fell $1.31, or 1.6 percent, to $80.17 a barrel in electronic trading at 4:32 p.m.

Stockpiles of distillate fuel, a category that includes heating oil and diesel, climbed 1.75 million barrels from 169.7 million, according to the survey. Sixteen respondents forecast a gain and two a drop. Inventories last week were 25 percent above the five-year average.

The Energy Department is scheduled to release its weekly report at 10:30 a.m. tomorrow in Washington.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net

Aug. 6 (Bloomberg) -- Francisco Blanch, head of global commodities research for Bank of America-Merrill Lynch, talks about the outlook for crude oil and gasoline prices. Blanch, speaking with Deirdre Bolton on Bloomberg Television's "InsideTrack," also discusses Russia's ban on wheat exports and the impact on the market. (Source: Bloomberg)