FocusUS RBOB prices fall as refiners seek higher margins

26 August 2010 20:01  [Source: ICIS news]

HOUSTON (ICIS)--Prices for US reformulated blendstock for oxygenate blending (RBOB) could continue to fall as companies run their refineries faster than drivers can consumer the fuel, sources said on Thursday.

A huge spike in gasoline inventory levels helped drive RBOB prices lower on 25 August, to $1.8458/gal from $1.9612/gal the week before.

RBOB prices on Thursday increased by 4.42 cents/gal, to $1.9081/gal, amid a drop in the US unemployment rate. That was still a five-year low, according to US Department of Energy (DOE) data.

The recent dip in RBOB values stood in contrast of normal summer price behavior, however. US consumers drive more during the summer, which usually leads to a drawdown in fuel stocks and an increase in prices. Even in the current sluggish economy, fuel demand levels have not fallen

US drivers rode 264bn vehicle miles in June, the highest number for that month since 2007, according to the US Department of Transportation (DOT).

“Motor gasoline stocks, which should be falling considering that the reference week was in the heart of the summer driving season and historically sees a 2.48m bbl draw, increased by 2.27m bbls,” analyst Stephen Schork wrote in an 25 August industry report.

US gasoline inventories rose to more than 225m bbl as of 20 August, 8% higher than at the same time the year before. That was despite a 3% year-on-year gain in gasoline demand.

Dominick Chirichella, analyst and partner at the Energy Management Institute in New York, said refiners are flooding the market with gasoline as they try to take advantage of high profit margins amid low-priced crude oil.

Supply is just overwhelming,” Chirichella said. “Refinery runs are way too high. But margins have been rewarding suppliers to keep them high. Imports just keep on coming, and refinery keeps on producing.”

US fuel refiners have run their plants at more than 90% of capacity for five of the past seven weeks, according to the latest data from the US Department of Energy. Refinery run rates neared 88% of capacity during the week ended 20 August, down from the week before but up from 84% during the same period of 2009.

The refining crack spread - the difference between the price of crude oil and refined products - has floated between $6.00 and $9.00 for August. While those may not be the best margins that the industry has seen, refiners will take what they can get, sources said.

Bill Day, spokesman at oil refiner Valero, said the industry will probably see margins undergo seasonal slowdown in the third and fourth quarters, meaning refiners have to take advantage of the profit margin while they can.

“We’re still not seeing strong economic growth,” Day said. “Until we see strong economic growth, we can’t depend on margins staying strong.”

($1=€0.79)

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By: Ben Lefebvre
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