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4Qtr US Crude Runs Lowest Since 1996

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    Charles Randall

    10/9/2008 7:56:00 PM

    ENERGY MATTERS: 4Q US Crude Runs Seen Lowest Since 1996
    NEW YORK (Dow Jones)–As oil prices slide to the lowest level this year amid poor demand, refiners are expected to keep crude oil processing rates at their lowest fourth-quarter level in 12 years.
    That weak projection, from the Energy Information Administration, itself could prove to be over-optimistic as it doesn’t take into full account the latest global economic meltdown.
    EIA projections show U.S. refiners processing an average of 14.4 million barrels a day of crude in the current quarter, the lowest level since 1996, and a drop of more than 650,000 barrels a day, or 4.4% from a year ago.
    Lower crude oil demand in the U.S., the world’s biggest oil consumer, is likely to put further pressure on prices and add to concerns within OPEC.
    The Organization of Petroleum Exporting Countries confirmed Thursday it will hold emergency talks on Nov. 18 in Vienna “to discuss the global financial crisis, the world economic situation and the impacts on the oil market.”
    OPEC repeated its “determination to ensure that oil-market fundamentals are kept in balance and market stability is maintained.” OPEC’s president was quoted as saying it is “very likely” the group will agree to an output cut. The price of OPEC’s reference basket of crudes was reported Thursday at $77.38 a barrel, the lowest level in a year.
    Make Gasoline, Lose Money
    November-delivery crude oil futures prices on the New York Mercantile Exchange fell $2.36 a barrel, or 2.7%, to $86.59, the lowest price since Oct. 23, 2007. Crude is off 40% from its record high settlement of $145.29 a barrel on July 3.
    EIA analyst Tancred Lidderdale said the drop in U.S. oil demand and an expected jump in net imports of petroleum products is behind the expected drop in crude oil runs.
    Oil traders said poor margins, specifically, the longest sustained streak of negative Nymex gasoline cracks in exchange history, provide further incentive to limit runs. On average in the past five days, refiners have been losing more than $2 a barrel in producing gasoline, based on the spread between the price of front-month crude futures and front-month gasoline futures.
    Gulf Coast oil refineries are still recovering from the twin hurricanes that struck the region in September. The Energy Department said Thursday that a single refinery, ExxonMobil’s 348,500 barrels a day Beaumont, Texas plant, remains shut down.
    EIA said in the week ended Oct. 3 that refinery runs climbed 12.6% to just over 14 million barrels a day, but are still 8% below the pre-hurricane level of late August.
    For all of October, EIA sees refinery runs averaging just 13.89 million barrels a day, about 1 million barrels a day below a year ago, but still slightly above the October 2005 level, when Gulf Coast refineries were recovering from Hurricanes Katrina and Rita.
    Distillates To Flow Into US
    In November, crude runs are expected to average just 14.65 million barrels a day, down 500,000 barrels a day from a year ago and the weakest level for the month since 1996. December levels are seen climbing modestly to near 14.8 million barrels a day, still the lowest since 2001 and 420,000 barrels a day below a year earlier.
    Lidderdale said EIA projects lower runs as it expects net imports of gasoline to soar and sees a decline in distillate (heating oil/diesel) exports.
    EIA projections show gasoline imports near 1.1 million barrels a day for all of October, a 15% jump from a year ago and the most in the month since 2005.
    Net distillate imports of 71,000 barrels a day are expected in October, more than six times the year-ago level, and a turnaround from 11 straight months of net exports, which averaged 121,000 barrels a day in September. Demand from Chile, a big U.S. export market, has fallen off as heavy rains have restored hydroelectric generating capacity.
    EIA on Tuesday tripled the size of its expected decline in fourth-quarter U.S. oil demand and warned that the level may still be too high, given the extent of the uncertainty of the global financial crisis. Fourth-quarter demand is expected to average 20.25 million barrels a day, down 330,000 barrels a day from a year ago, and the lowest level for the period since 2003.
    (David Bird, senior energy correspondent for Dow Jones Newswires, has covered global oil markets for more than 20 years. He can be reached at 1-201-938-4423 or by e-mail: 

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