Dec. 28 (Bloomberg) -- Midwest gasoline fell to the weakest level in more than two decades as low crude prices and strong profit margins encouraged refiners to process more oil, adding to a glut in the region.
Midwest refiners last week processed an average of 3.48 million barrels of oil a day, 6.1 percent higher than the five-year average of 3.28 million, according to the Energy Department. The profit, or crack spread, from turning oil into refined products in the Midwest for this time of year is the highest since at least 2006, data compiled by Bloomberg showed.
Conventional gasoline in the Midcontinent, or Group 3 market, weakened 4 cents to a discount of 39.5 cents below futures on the New York Mercantile Exchange at 4:05 p.m., the lowest level since at least 1990. Conventional gasoline to be blended with ethanol, or CBOB, in Chicago was strengthened 0.5 cent to a discount of 27.5 cents.
“The number one thing putting pressure on prices is the cheap crude oil,” Lewis Adam, president of ADMO Energy LLC, a supply consultant in Kansas City, Missouri, said by phone today. “As refiners access this cheaper crude, they are running at this outrageous capacity.”
West Texas Intermediate oil for February delivery fell 7 cents to settle at $90.80 a barrel on the New York Mercantile Exchange.
The 5-3-2 crack spread, a measure of refining profitability, for Midwest gasoline and diesel over West Texas Intermediate was $34.61 a barrel at 4:06 p.m., down from $36.08 yesterday. Profits have more than doubled so far this year, according to data compiled by Bloomberg.
Inventories of motor fuel in the Midwest, known as PADD 2, increased 467,000 barrels to 50.3 million in the week ended Dec. 21, the highest level for this time of year since 2006, department data showed. U.S. demand for gasoline fell by 10,000 barrels to 8.61 million barrels a day.
“It’s the overall supply of crude out there, and not just crude but crude at very low prices,” Carl Larry, president of Oil Outlooks LLC, said in a phone interview from Houston. “Midwest PADD 2 refineries are running well over 90 percent. We’re not going to see a large demand for products so it’s keeping pressure on prices.”
Ultra-low-sulfur diesel in the region weakened 1.62 cents to 6.5 cents a gallon below heating oil futures, the widest discount since Feb. 22. The same fuel was unchanged in Chicago at a discount of 7 cents.
Midwest supplies of distillates including heating oil and diesel gained 371,000 barrels to 25.8 million, a second consecutive weekly advance, the department said today. Demand slipped about 12 percent to 3.71 million barrels a day.
“We’re going to continue to see low gasoline and diesel prices for the next month or two,” Larry said. “Then we’ll pick back up depending how soon the season breaks and we see more demand.”
California-grade gasoline, or Carbob, retreated 2.5 cents to 4.5 cents a gallon above futures in Los Angeles, while the fuel in San Francisco slipped 2.5 cents to a premium of 1.5 cents.
CARB diesel in the region fell 0.25 cent to 4 cents a gallon over heating oil futures. The same grade diesel in San Francisco gained 0.5 cent to a discount of 2 cents.
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