Gasoline Profit Margins Sink, Pressuring Refiners to Adjust

  • Refiners looking to produce more jet fuel, diesel: Lipow
  • Falling margins cutting into share prices of independents

Refiners are considering producing more diesel and jet fuel now that gasoline profit margins have fallen to the narrowest seasonal levels since 2010.

Those margins have dropped by $5 a barrel in just over two weeks as high imports have kept U.S. inventories elevated even as gasoline demand rises, said Andy Lipow, president of Houston-based Lipow Oil Associates LLC. The streak of declines wasn’t stopped by yesterday’s U.S. Energy Information Administration projection that summer gasoline demand will rise to a record 9.5 million barrels a day.

"We’re seeing the economics change to the point that many refiners along the coast are looking at maximizing jet fuel and diesel at the expense of gasoline," Lipow said. "Refiners will start maximizing diesel output right in the middle of the summer gasoline driving season."

Gasoline imports into the U.S. East Coast, which primarily come from the refineries in eastern Canada and Europe, have kept U.S. inventories at the highest levels seen in at least 20 years, EIA data show. East Coast imports, which dropped 77,000 barrels a day to 785,000 last week, are nearly double the year-earlier level.

Oil trading company Trafigura Ltd. has added to inventories by bringing more than 1 million barrels of gasoline ashore from floating storage tankers in the Gulf of Mexico since mid-April, according to U.S. Customs data compiled by Bloomberg. Those supplies are unlikely to show up in weekly EIA import figures, William Brown, EIA senior analyst, said by e-mail, as the shipper is responsible for identifying an origin country on the government’s forms.

"This has resulted in some oddities," Brown said.

The falling margins are hurting refiners. The BI North America Refining & Marketing index fell 4.49 points to 286.90 today, 28 percent below a year earlier. Western Refining Inc., HollyFrontier Corp. and CVR Refining LP were all down more than 3 percent at 2:12 p.m. in New York.

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