Houstan November 6 2023: U.S. crude oil refiners this quarter will pull back from red-hot summer run rates as weak gasoline margins and plant overhauls cool operating goals, according to company statements and oil analysts.
Refinery executives are aiming for low-90s utilization rates this quarter after running in the mid- to upper 90% range most of the year. A pullback for seasonal maintenance and a greater shift to producing distillates have reduced production, according to company executives, analysts and U.S. government data.
Production will be enough to keep gasoline prices tame with demand weaker than the production trims, said analysts. Refiners have kept producing gasoline at high rates to supply more distillates. Plants generally make two barrels of gasoline and one of diesel for every three barrels of crude oil processed.
“Guidance has been generally within our expectations of seasonally softer levels due to the pullback in gasoline demand,” said Matthew Blair, head of refiners, chemicals & renewable fuels research at investment firm Tudor, Pickering, Holt & Co.
AAA said on Thursday that gasoline prices have fallen 37 cents in the last month to a national average of $3.44 a gallon as gasoline demand continued to decline.
Last week, the U.S. Energy Information Administration (EIA) reported the latest drop in gasoline demand from 8.86 million barrels per day (bpd) to 8.7 million bpd.
Some companies, notably second-largest Valero Energy (VLO.N), aim to continue high production to capture jet fuel and other distillate demand. Valero’s 14 refineries will operate between 93% and 96.5% of combined crude oil capacity of 2.7 million bpd. HF Sinclair also aims to run slightly hotter this quarter than last with plant turnarounds completed.
Marathon Petroleum (MPC.N), the largest U.S. refiner with 13 domestic plants processing 2.9 million bpd, said it plans to operate at 90% capacity, down from 94% last quarter.
Phillips 66 (PSX.N), the fourth largest refiner, said it would operate in the low 90% range, down from 95% in the third quarter.
“Ninety to 91% is where they will operate,” said John Auers, managing director of Refined Fuels Analytics. U.S. refiners are emphasizing diesel production, which has higher profit margins, as they emerge from overhauls, Auers said.
Refineries can shift between 5% and 10% of their production to emphasize either distillate or gasoline production.
Distillates earned about $1.10 a gallon in August while gasoline brought in 80 cents a gallon, according to the EIA.
“It is the diesel that’s carrying the day,” said Andrew Lipow, president of consultancy Lipow Oil Associates. He expects fourth quarter refinery utilization in “excess of 90%” of capacity.
