Jumpin’ Jack Flash, There’s No Gas, Gas, Gas!
MarketWatch’s Moming Zhou reported Monday that U.S. refineries operated at only 81.4% of their capacity in the week ending April 11, according to the U.S. Department of Energy. The last time this number fell below 80% was in October 2005, in the wake of Hurricanes Katrina and Rita. This takes place at a time when the Energy Information Administration (EIA) predicts the price of gasoline could surpass $4 a gallon in the upcoming driving season in some areas.
The culprit, said Zhou, is the record run in oil prices, which is rising much faster than gasoline prices. The gap between the price of crude and the price of gasoline and other refined products has pressured profit margins at refiners, so much so that earnings from downstream operations including refining slumped 62% for a group of 10 major U.S. oil companies in the fourth quarter. The first quarter may be even worse. Earnings for the three dedicated refiners in the S&P 500 Index are anticipated to fall 94% to just under $67 million from $1.2 billion a year ago, according to Thomson Financial.
Since their bottom line is taking a huge hit, refiners have decided to take more of their production offline and retool their plants this spring. Which explains why refineries are operating at only 81.4% of capacity. According to economist James Williams of energy-research firm WTRG Economics:
This is a maintenance season. If you can’t make a lot of money, you do a little more repairs.
Zhou said that spring is typically when refiners idle parts of their plants to undertake maintenance. But, she noted, “they don’t always cut back so drastically.”
Source:
“Refiners slow fuel production as profits drop”
Moming Zhou
MarketWatch, April 21, 2008
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