Refiners Cut Oil Output in U.S. to April Low, Survey Shows: Energy Markets
Refiners Cut Oil Output in U.S. to April Low
Aaron M. Sprecher/Bloomberg
The main area of the BP Plc refinery stands in Texas City.
The main area of the BP Plc refinery stands in Texas City. Photographer: Aaron M. Sprecher/Bloomberg
Sept. 7 (Bloomberg) -- Edward Morse, head of commodities research at Credit Suisse Group AG, talks with Bloomberg's Mark Crumpton about crude oil prices and the natural gas market. (Source: Bloomberg)
U.S. refiners probably cut crude- processing rates to the lowest level since April as they began seasonal maintenance, a Bloomberg News survey showed.
Refineries operated at 86.5 percent of capacity last week, down 0.5 percentage point from a week earlier, according to the median of 14 analyst estimates in the survey. The Energy Department is scheduled to release its weekly supply report at 11 a.m. today in Washington, a day later than usual because of the Labor Day holiday on Sept. 6.
The profit from turning oil into finished products has tumbled 48 percent since May amid a glut of fuel, boosting the incentive to carry out repairs and upgrades. Refiners typically idle units for maintenance in September and October, a time when gasoline use falls and consumption of heating-oil has yet to increase before the peak-demand winter months.
“We’re entering a period of the year where crude oil demand falls because the refiners in the world go into maintenance mode,” Edward Morse, head of commodities research at Credit Suisse Group AG in New York, said in a Sept. 7 interview on Bloomberg Television. “They cut back on their refinery runs by about 3 million barrels a day.”
The profit, or crack spread, from converting three barrels of oil into two of gasoline and one of heating oil was $8.53 today, based on futures prices on the New York Mercantile Exchange. This year’s peak was $16.909 on May 13. The spread has averaged $10.81 since the reformulated gasoline contract started trading in October 2005.
Deferred Maintenance
“Refiners are using this period of low margins and weak demand as an opportunity to do work they haven’t done in years,” said Peter Beutel, president of Cameron Hanover Inc., a trading adviser in New Canaan, Connecticut. “Refineries had to run full-out during the first seven years of the decade because of surging demand, and then they had to defer planned maintenance because of the hurricanes of 2005 and 2008.”
Refinery operations plunged to 66.7 percent of capacity in September 2008 when ports along the Gulf of Mexico were shut because of hurricanes Gustav and Ike. The previous low, 69.8 percent, was reached in September 2005 after hurricanes Katrina and Rita battered the region.
U.S. fuel consumption will average 18.9 million barrels a day this year, down 9 percent from the all-time high in 2005, according to Energy Department forecasts.
Demand may rise after an explosion at Petroleos Mexicanos’s 235,000 barrel-a-day Cadereyta refinery outside the city of Monterrey on Sept. 7, according to Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. The plant is continuing to operate, according to a Pemex official who declined to be named, citing company policy.
Mexican Imports
Mexico is the biggest market for U.S. exports, importing 432,000 barrels a day of fuel in June, according to the Energy Department.
“The explosion at the refinery in Mexico was something unexpected and will have to be watched because we are a major supplier of product to the country,” Schork said.
Inventories of distillate fuel, a category that includes heating oil and diesel, probably rose 700,000 barrels last week, or 0.4 percent, to 175.9 million, the highest level since January 1983, according to the Bloomberg survey. Crude stockpiles may have increased by 1 million barrels, or 0.3 percent, the third straight gain.
Gasoline Supplies
“Refineries will be cutting back in the weeks ahead, which will be good for supply,” said Carl Larry, president of Oil Outlooks and Opinions LLC in Houston. “There’s a great deal of fuel around.”
Gasoline supplies slipped 1 million barrels to 224.4 million last week, according to the survey. Inventories in the week ended Aug. 27 were 14 percent above the five-year average for the period, the department said.
Crude for October delivery rose as much as 0.8 percent to $75.27 a barrel today on the Nymex. Futures slid below $70 on May 17 for the first time since February, trading at $64.24 three days later, the lowest level this year. Prices haven’t dropped below $70 a barrel since June 7.
“We could see a decline to under $70, but I don’t think it would last any much longer than it did the last time it fell under $70,” Morse said. “The market will have the momentum to rebound and expectations of higher crude runs will come to the fore.”
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net
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