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US Refining Downtime lasting longer – Utilization lower

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This topic contains 1 reply, has 1 voice, and was last updated by  Charles Randall 13 years, 2 months ago.

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  • #3713

    Charles Randall
    Participant

    Marathon’s Cazalot Sees U.S. Refining Downtime Lingering Longer
    2008-04-03 15:15 (New York)
    By Jim Kennett
         April 3, 2008 (Bloomberg) — Marathon Oil Corp., the largest
    refiner in the U.S. Midwest, said plant maintenance is taking
    longer than in years past, keeping utilization of the nation’s
    fuel-making capacity near the lowest level since 2005
    .
         “The first quarter is typically the turnaround time, but I
    think we’re going to see a continuation of that,” Marathon
    Chief Executive Officer Clarence Cazalot said today in an
    interview in Houston. “This turnaround season is going to drag
    on into the second quarter as well.”
         Upgrading of refineries to handle more cheap oil grades is
    slowing the pace of maintenance projects, as is a shortage of
    skilled workers,
    Cazalot said. The U.S. Energy Department
    yesterday reported a third straight week of declines in gasoline
    inventories, sending futures prices to a record high
    .
         U.S. refiners were running their plants at 82.4 percent of
    capacity last week, according to the Energy Department. That was
    the third-lowest level since October 2002, when Hurricane Lili
    cut rates to 79.7 percent. Utilization hit 69.8 percent in
    September 2005, after Hurricanes Katrina and Rita
    battered and
    flooded refineries on the Gulf Coast.
         Oil prices have risen almost twice as fast as gasoline in
    the past year, narrowing profit margins for refiners. Houston-
    based ConocoPhillips, the second-largest U.S. refiner, today
    said it cut output at some plants for economic reasons as profit
    margins fell 35 percent from a year earlier
    . Tesoro Corp., which
    owns seven U.S. refineries, said in January that it was slowing
    run rates because of weak margins.

                          Intentional Slowdowns

         Gary Heminger, Marathon’s refining chief, last week
    attributed low utilization rates to maintenance work and said
    he’d be surprised “if there are many units down right now due
    to economics.” Cazalot reiterated the point, saying Houston-
    based Marathon runs its plants as close to capacity as possible.
         “When he says there aren’t many people down for economic
    reasons, it means there are some people down for economic
    reasons,” said James Halloran, who helps manage $35 billion in
    assets, including 1.2 million Marathon shares, at National City
    Private Client Group in Cleveland.
         The Energy Department plans to issue a report twice a year
    on planned refinery shutdowns and their impact on markets.
    Called for by the Energy Independence and Security Act of 2007
    ,
    the report would provide historical context for utilization
    rates and their effect on markets.
         Refinery-specific information must be protected for
    competitive reasons, including the need to buy additional fuel

    before a shutdown to meet supply commitments, Cazalot said.
    Marathon would contribute to a report as long as the government
    doesn’t identify individual plants, said Cazalot, who added that
    he doesn’t think the data will show an impact on prices.

                        Trading, Not Fundamentals

         “I don’t think that’s the volatility,” said Cazalot, who
    attributed rapidly changing prices to speculative commodities
    trading. “If you purely had supply and demand, the folks who
    produce the oil selling to the folks that refine the oil, you
    wouldn’t have that kind of volatility
    .”
         There is “little evidence” that speculators are driving
    up prices, Jeffrey Harris, chief economist for the U.S.
    Commodity Futures Trading Commission
    , said today at a hearing of
    the Senate Energy and Natural Resources Committee.
         In addition to record crude-oil costs, refiners are facing
    the prospect of declining fuel demand as the U.S. economy slows.
    Federal Reserve Chairman Ben S. Bernanke yesterday acknowledged
    for the first time that a U.S. recession is possible
    .
         At the same time, increasing use of ethanol in blends with
    gasoline is displacing oil-derived fuel. Refiners can plan for
    ethanol use, as well as a shift to more diesel use at the
    expense of gasoline
    , Cazalot said. It is the U.S. and world
    economies that are the “wild card,” he said.

                      Gasoline Sales Drop

         January gasoline sales were 2.7 percent lower than last
    year and 5.8 percent lower than in 2006, according to government
    figures. Profit from processing six barrels of crude oil into
    three barrels of gasoline, two of diesel and one of heating oil,
    averaged $4.85 a barrel in the first quarter, down 40 percent
    from a year earlier, Bloomberg data shows.
         Margins have since recovered, and were as high as $9.128 a
    barrel yesterday
    . That may be a short-lived benefit of seasonal
    maintenance, said Ann Kohler, an analyst at Caris & Co. in New
    York who rates Marathon shares at “average” and owns none.
         “The big concern is that at $100 oil, we’re going to have
    higher gasoline prices,” Kohler said. “With the weakened
    economic environment, you’re going to have gasoline demand
    destruction.”

    –Editors: Tony Cox, Kim Jordan.

    To contact the reporter on this story:
    Jim Kennett in Houston at +1-713-353-4871 or
    jkennett@bloomberg.net.

  • #6949

    Charles Randall
    Participant

    Here is view from Marathon that US refining downtime is taking longer partially due to all upgrading for heavy crudes slowing maintenance work, but doesn’t believe economic reasons are responsible for decreased utilization rates.  
     
    However, current refinery utilization this week are @ 82.4% the third lowest since Hurricane Lili Oct 2002 79.4% or Hurricanes Rita/Katrina Sept 2005 69.8%. But Tesoro and COP have said they cut rates because margins are down 35%, and
    it is clear the high prices in weakened economic environment is causing some demand destruction (along with higher ethanol blending & diesel use backing out demand). Fed has admitted for first time yesterday that an economic recession is possible.
     
    The US Chief Economist for Commodity Futures Commission continues to bury his head in sand or (other body parts) claiming prices are not driven by speculative trading – several Senators stated opposite view. Reality check is @ a$66/BBL crude gasoline was $3/gal currently crude is $104/BBL and gasoline is $3.2/gal dropping margins by 40-50% despite little drop in demand and it hasn’t been fundamentals driving volatility spikes in market.
     
    I have been tracking the reduced utilization / production in US via the petcoke production which has remained at / below 2004 levels (39-40 mm mtpy) for 4 years now despite adding some +3.5-5.0 million mtpy of additional coking capacity via new cokers or debottlenecking.
    This capacity exist as overhang and the larger number of coker projects coming online this year (plus last year’s new cokers operating for full year production) and long time idled capacity like BP Tx City’s 1 mm mtpy petcoke finally coming back online.
     
    Petcoke, much like the refining prospects – has all making’s this year for a perfect storm of higher capacity coming online at time of price driven demand destruction, displaced demand from alternate fuel use, and recessional economic environment making its normal 4-5 year cycle (always more prevalent at end of 2 term president’s).
    Regards

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