Refiners process record amount of crude
High pace helps keep fuel prices low, puts U.S. stockpiles above average
U.S. refineries, responding to discounted West Texas crude and increased profit margins, processed a record amount of crude into gasoline and other fuels in early July, a development that could bode well for American drivers.
Refiners churned through an average of 18 million barrels of crude oil in the week ending July 6 to meet strong domestic and international demand for gasoline, diesel and jet fuel, beating the record of 17.9 million barrels day set just two weeks earlier in the week ending June 22. This period represented the greatest consumption of crude oil by U.S. refineries since the week of Aug. 25, 2017, when Hurricane Harvey was bearing down on the Gulf Coast and refiners cranked up production to 17.8 million barrels a day in advance of possible shutdowns.
Harvey knocked out at least one-fifth of the nation’s refining capacity.
The record pace of refining has helped keep gasoline prices stable this summer — a time of year when prices typically jump as Americans hit the road for vacations, said Patrick DeHaan, head of petroleum analysis at Gas Buddy, a company that tracks gas prices across the country. Since June 20, he said, average prices nationally have stayed in a narrow range between $2.83 and $2.89 a gallon.
Over the past week, the
national average fell a penny to $2.85 a gallon, while the price of gallon of gasoline in Houston fell about 2 cents to $2.59, according to GasBuddy. Average prices in San Antonio also fell 2 cents a gallon to $2.49.
Drivers are likely to see even lower prices in the weeks ahead — barring a major hurricane — as U.S. gasoline stockpiles have risen above the five-year average just as the peak summer driving season is coming to an end. DeHaan said prices could fall another 10 to 20 cents a gallon over the next few months.
“Gasoline inventories remain healthy, and with summer drawing to a close and gasoline demand set to step down, we may see additional relief,” DeHaan said.
Gasoline prices also have followed the price of crude, which broke above $74 a barrel earlier this summer, but retreated amid concerns of rising supplies and slowing economic growth. Crude lost 43 cents a barrel to settle at $67.20 on Monday in New York trading.
Crude is the main component of gasoline, so cheaper oil prices can lower refiners costs and boost profit margins. Zachary Rogers, refining and oil products analyst for the energy consultancy Wood MacKenzie, said refiners are receiving benefits from both sides of the supplydemand equation and taking advantage of it by running their refineries at or near capacity this summer.
On one side, oil leaving the Permian Basin in West Texas and some parts of Canada has run into pipeline constraints, forcing production companies to sell their crude at a discount to refiners because they can’t guarantee delivery. At the same time, demand for refined products — specifically diesel and jet — is particularly strong, while Mexico and South America are importing more American gasoline.
“It’s really incentivizing these refiners to run as hard as they can,” Rogers said.
The payoff for refiners was illustrated by recently reported second quarter earnings. Phillips 66 of Houston said its secondquarter profit more than doubled to $1.3 billion from $550 million during the same period in 2017. The San Antonio refiner Valero Energy Corp. reported a second-quarter profit of $845 million, up from $548 million the prior year.
The Ohio refiner Marathon Petroleum Corp., which is acquiring Andeavor of San Antonio, nearly doubled its second-quarter refining earnings from the previous year with a profit of just over $1 billion.
The Energy Department said the record levels of crude consumption by refineries are driven largely by production in the Gulf Coast and Midwest regions. The U.S. Gulf Coast accounts for more than half of U.S. refining capacity and those refineries also processed a record amount of crude, reaching a four-week average of 9.5 million barrels a day of crude oil for the week ending July 6.
The Midwest region, with the second-highest oil refining capacity, hit a record high four-week average consumption of 4.1 million barrels a day of crude oil for the week ending June 1.
The Energy Department predicted in its Short-Term Energy Outlook released in August that U.S. refineries will process an average of 16.9 million and 17 million barrels of crude oil a day in 2018 and 2019, respectively. Both would be records, surpassing the 2017 annual average of 16.6 million barrels a day.