Gross U.S. refinery inputs in October averaged 15.4 million bbl/d, 800,000 bbl/d below the average for June through September (Figure 1). Even with the recent decline in refinery runs, gross inputs remain above the five-year range for this time of year and gasoline prices have continued to move downward. Strong global demand for diesel fuel and other distillates is resulting in high prices for these products, keeping overall refinery margins attractive and refinery runs robust compared with seasonal norms, despite anemic gasoline margins.
Robust runs at Gulf Coast (PADD 3) refineries, which account for more than 50% of U.S. capacity, are driving the high national utilization rate. Through November 1, Gulf Coast gross inputs were above the region's five-year range in all but six weeks of 2013. Refiners in the region are running at record levels to meet strong global demand for distillate, particularly in Latin America. With access to discounted U.S. crude oil, relatively low-priced natural gas as a feedstock and fuel source, and geographic proximity to demand in Latin America, Gulf Coast refineries are well suited to serve those markets.
Some of the recent reduction in refinery runs can be attributed to planned maintenance. Refineries typically schedule turnaround activities for periods of relatively low demand, such as during the autumn after the summer driving season has ended, and in the early spring, after the home heating season but before the driving season begins. Trade press indicates that several maintenance projects are currently underway or were recently completed. Phillips 66's Ponca City, Oklahoma (198,000 bbl/d); Motiva's Norco, Louisiana (234,000 bbl/d); and Tesoro's Golden Eagle, Martinez, California (166,000 bbl/d) all recently completed work on units. Units at Marathon's Garyville, Louisiana (522,000 bbl/d); Philadelphia Energy Solutions's Philadelphia, Pennsylvania (335,000 bbl/d); and Valero's Three Rivers, Texas (93,000 bbl/d), are currently undergoing planned maintenance.
Planned refinery maintenance is typically scheduled well in advance to ensure availability of specialized maintenance staff. In addition, refiners typically arrange for alternate sources of product supply during shutdowns, including purchases and exchanges with other refiners, which reduce supply disruptions and blunt the impact of shutdowns on prices of gasoline and other petroleum products. In addition, product inventories are often built ahead of refinery maintenance, providing yet another source of alternate supply.
Total U.S. gasoline inventories fell nearly 10 million barrels between October 4 and November 1 to reach 210.0 million, but remain near the top of the five-year range. In PADD 3, gasoline inventories built by 3.9 million barrels between August 30 and September 27, and then fell by 7.2 million barrels by November 1. A similar pattern happened in the Midwest (PADD 2), with inventories increasing by 3.3 million barrels from August 30 to September 27. The decrease in inventories has been softer, however, falling by just 1.7 million barrels through November 1.
At $3.27 per gallon as of Monday, November 4, the average U.S. retail regular gasoline price is at its lowest level so far this year. Current retail gasoline prices are below their level during the comparable seasons during both 2011 and 2012 (Figure 2).
Despite the decreasing wholesale and retail gasoline prices in October, refineries still had incentive to run crude oil. Using Gulf Coast wholesale prices for conventional gasoline and ultra-low sulfur distillate and Louisiana Light Sweet crude oil, 3:2:1 crack spreads have been attractive to refiners throughout 2013 despite negative cracks for gasoline during parts of September and October (Figure 3). And for refineries with higher distillate yields relative to gasoline, the available spreads are even higher. For example, for refineries with a ratio of 1.5 to 1 between gasoline and distillate yields instead of 2 to 1 (as assumed in the 3:2:1 crack spread), the crack spread calculated on a 2.5: 1.5:1 basis was 3 cents per gallon higher since early September. With global demand for distillate (among total liquid fuels) expected to strengthen in the coming months, according to EIA's October Short-Term Energy Outlook, crack spreads, especially on a 2.5:1.5:1 basis, may continue to widen even if gasoline crack spreads remain low or negative.
Gasoline and diesel fuel prices fall for a second consecutive week
The U.S. average retail price of regular gasoline decreased three cents to $3.27 per gallon as of November 4, 2013, a new low for the year, and 23 cents lower than last year at this time. Prices fell in all regions of the nation for the second consecutive week, with the largest decrease coming in the Rocky Mountains, where the price dropped six cents to $3.31 per gallon. The West Coast price was $3.56 per gallon, a decline of five cents from last week, and the Gulf Coast price was $3.03 per gallon, a decrease of four cents. On the East Coast the price fell three cents to $3.29 per gallon, and the Midwest price was lower by a penny at $3.19 per gallon.
The national average diesel fuel price fell one cent to $3.86 per gallon, 15 cents lower than last year at this time, and the lowest price since July 8, 2013. The West Coast price was $4.02 per gallon, two cents lower than last week, while prices in all other regions declined by a penny. The East Coast price was $3.88 per gallon, the Midwest price was $3.83 per gallon, the Gulf Coast price was $3.77 per gallon, and the Rocky Mountain price was $3.86 per gallon.