Refinery Utilization Rates React to Economics in 2011

The divergence of West Texas Intermediate (WTI) and Brent crude oil prices in 2011 affected refinery utilization in the United States, particularly in the East Coast (PADD 1) and Midwest (PADD 2) regions. Historically, refineries in these districts operated at 80-90% of their capacity. Changes in refining economics last year contributed to real contrasts in refinery utilization in some of the PADDs (see Overview chart).

Source: U.S. Energy Information Administration, Refinery Utilization and Capacity.

 Some key findings by PADD include:

• PADD 1. East Coast refining typically relies on imports of crude oil based on the Brent crude price, which, on average, increased to a $16-per-barrel premium over WTI spot prices in 2011. As a result, two East Coast refineries idled capacity due to poor economics, while another is considering selling or shutting down. PADD 1 utilization averaged only 68% of operable capacity in 2011, which includes the idle capacity of closed refineries. This utilization rate reflects both the drop in East Coast refining capacity and lower crude oil inputs.
• PADD 2. Midwest refineries benefitted from supplies of less expensive crude oil coming from Canada and increased production in the Bakken formation. Thus, PADD 2 refineries averaged about 91% utilization in 2011, even with increased refining capacity. As a result, PADD 2 average crude oil inputs of nearly 3.4 million barrels per day were at the highest level since 2000.
• PADD 3. Gulf Coast (PADD 3) continued capacity expansions as refineries upgraded infrastructure to maximize yields. Growing oil production in Texas and the Midwest contributed to increased inputs. The Gulf Coast refineries were able to use different types of crude oil to maximize production. Refineries in this region used cheaper sources of crude compared to the rest of the country.
• PADDs 4 and 5. Refinery closures, outages, and a lack of access to less expensive crude oil reduced inputs in 2011 to refineries in PADDs 4 and 5 and helped drive down utilization rates.

 

Commodity Corner: Pipeline Outage Continues, But Oil Ends Lower

October oil futures edged lower Tuesday despite fears of a prolonged shutdown of a key Enbridge pipeline that carries crude oil from Canada to the U.S.

Crude prices settled at $76.80 a barrel, a 39 cent decrease from the previous day's trading session. The continued shutdown of Line 6A of Enbridge's Lakehead System near Chicago is providing support for oil prices. Line 6A, which can carry up to 670,000 barrels a day from Canada to the upper Midwest, will not be allowed to restart until U.S. government regulators deem it safe. Already causing a sharp increase in gas prices across the region, investors fear the supply disruption could begin to drain U.S. oil inventories.

Additionally, sluggish economic growth in Germany applied downward pressure to crude futures. A survey revealed lower than expected German investor sentiment, and industrial production in the euro area was flat in July, according to EU's statistics office. Analysts suggest that despite China's booming economy, mixed economic conditions in the U.S. and Europe have kept price increases in check.

The intraday range for October crude was $76.21 to $77.99 a barrel.

Meanwhile, natural gas for October delivery rose 2.8 cents Tuesday to settle at $3.97 per thousand cubic feet. The third price increase in as many trading days supports speculation that the days of lower natural gas futures may have passed for the season. However, some analysts are being cautious and are not declaring a seasonal rally yet. Gas prices were threatened earlier Tuesday on forecasts of storm clusters forming in the Gulf of Mexico, but no immediate storm threats have been seen, steering clear of production outages. Natural gas
fluctuated between $3.84 and $4.02 Tuesday.

RBOB gasoline settled lower at $1.97 a gallon, peaking at $2.00 and bottoming out at $1.96.

From the staff at Rigzone

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