US refinery rates increase

Oct 27, 2004 02:00 AM

Evidence that the United States' refining sector was picking up steam and producing more refined fuel helped pull support away from oil futures in a big way. Crude prices fell more than $ 2 per barrel on the New York Mercantile Exchange, and prices for gasoline and heating oil also suffered significant loses following word from the Energy Department that both crude supplies and refinery production increased.
"Refinery utilization had reached nearly 96 % as recently as the week ending Sept. 10," the Energy Department's Energy Information Administration said in its weekly look at the US petroleum market. "Following Hurricane Ivan and the beginning of the fall maintenance season, the average utilization rate has been below 90 % in each week of the past six weeks."

During the summer months when the nation's relative lack of surplus refining capacity was becoming a hot national election issue, refineries were running flat-out and not making much progress in building up the US stockpile of gasoline.
As a result, pump prices remained at lofty levels as wholesale buyers were forced to pay up by suppliers, or at least to raise their bids in order to secure the gasoline they needed for their customers.

Since Ivan's destructive post-Labour Day foray along the Gulf Coast, utilization rates had been hovering a little under 89 % compared to above 90 % last fall. Earlier, however, utilization grew to 89.2 %, a relatively significant step in the right direction; utilization is the amount of crude that is run through a refinery compared to the maximum amount the same plant could process.
"With refineries keeping their maintenance plans as quiet as possible so as to not add to their competitors' knowledge, it is difficult to know when we will see refineries getting back to a national utilization rate of 92 % or more," the EIA said. "When that does happen, we are likely to see the petroleum product inventory situation improve."

Much of the rout on NYMEX could be considered an example of perfect timing in which crude supplies remained high even as refineries began processing more oil. Maintenance work, particularly on the Gulf Coast, allowed crude supplies to build up. The EIA reported that crude inventories in the United States grew by more than 4 mm barrels to 283.4 mm barrels, the highest level since September 2003. The American Petroleum Institute's weekly report showed a 4.4 mm-barrel increase.
At the same time, with refinery production climbing for the second consecutive week, the output of gasoline and heating oil also increased significantly, which likely contributed to a 7.2-cent decline in November NYMEX heating oil and a loss of 7.6 cents for November gasoline.

The November fuel will hit the retail markets in the days prior to Christmas as travel by car and air increases and winter settles in across the north-eastern United States. Heating oil, diesel and jet fuel are known collectively as distillate fuels, so trading on the NYMEX heating-oil contract is influenced by distillates supply.
As overall distillate inventories fell 2.4 mm barrels and remained at a below-average level for the fall, traders saw production increasing, particularly in the key Gulf Coast and East Coast regions, and reacted in accordingly bearish fashion.

Although NYMEX heating-oil futures for winter-month delivery all fell more than 6 cents per gallon, they continued to trade at a relatively firm $ 1.50 per gallon. Since heating-oil demand relies a great deal on the weather, it is considered unwise to be short on heating oil during times when supplies are below average and a single extended cold spell can quickly deplete supplies even further.
"With distillate fuel prices in Europe high enough to discourage extra exports to the United States, even with the record near-month futures prices for heating oil in New York, US refinery production will be a key element for distillate fuel supply leading up to the cold weather expected in December and January," the EIA predicted.

The agency forecast continued increases in heating-oil production given that heating oil has been a particularly profitable commodity this fall, even with crude nearly at $ 55 per barrel. But retail heating-oil prices supported the notion that tight supplies continued to be a dominant concern. The nationwide average price rose 7.2 cents to $ 2.064 per gallon, nearly 68 cents above the same time last year.
Gasoline inventories rose 1.3 mm barrels and were pegged around the middle of the average range for autumn. Retail prices were fairly steady at $ 2.032 per gallon nationwide, and even posted a 2.2-cent loss in the Midwest.

The West Coast remained the highest-priced area of the nation with an average pump price of $ 2.291 per gallon. A build-up of nearly 200,000 barrels of crude in the region coupled with a slight decline in gasoline supplies could be an indication that some refineries in the West's refining centres of Los Angeles, San Francisco Bay and Puget Sound were shutting down for routine autumn maintenance.
The result could be another slightly misleading build in crude supplies masking a drop in the amount of gasoline that will be available to motorists in the West and the inevitable hike in pump prices.

Source: United Press International
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