22-12-08 Some Bay Area refineries are cutting back on operations or upgrades amid a gasoline market whose prices have plunged by more than half since mid-summer, the operators said.
Valero Energy is cutting back gasoline production rates at its refineries, including the company's plant in Benicia. Tesoro will delay some improvements at its refinery in Martinez, fuelled by corporate plans for $ 600 mm in capital spending for 2009, down 47 % from an initial projection of $ 1.14 bn that was announced a year ago.

Why are the cutbacks and delays happening? Oil companies have been forced to combat shrinking margins to refine gasoline lately. Reformulated gasoline prices peaked at around a nationwide average $ 4.30 a gallon on July 7. Since then they have plummeted to a national average of $ 1.75 a gallon, a 59 % decline.
"Refining margins on gasoline have actually been negative for several weeks now," said Bill Day, a Valero spokesman. "The price we receive for finishing gasoline is lower than what we have to pay for the crude oil coming into the plant" in Benicia.

The Valero cutback comes at what is called the fluid catalytic cracker unit in the Benicia refinery. The energy company is reducing gasoline production rates by about 25 to 30 % of typical levels at seven plants, including Benicia. The company will also prolong outages at units currently down for repairs.
Since the beginning of November, the margin nationwide to turn crude oil into gasoline has averaged a loss of $ 4 a barrel, based on futures quotes at the New York Mercantile Exchange. A year ago, the average profit margin was $ 5.79.

At Tesoro's Golden Eagle Refinery in Martinez, cutbacks are being planned for a variety of improvements at the factory.
"Some of the improvements will be delayed," said Ken Dami, a Tesoro spokesman. However, Tesoro plans to proceed with some of the upgrades, Dami said. A review is underway to determine which ones will be delayed.

Tesoro intends to spend about $ 365 mm in California, where the company has refineries in Martinez and the Wilmington district of Los Angeles.
"It's our policy not to comment on day-to-day operations, including production runs," ConocoPhillips spokesman Mark Hughes said.