US gasoline margins drop on falling winter demand, rising crude

11 November 2011 23:00  [Source: ICIS news]

HOUSTON (ICIS)--US refiners' gasoline profit margins have fallen as prices have dropped on falling demand while crude oil prices have risen, an analyst said on Friday.

“I believe gasoline has decoupled from crude as heavy products, such as distillate, have stolen the spotlight,” said analyst Patrick DeHaan with “Gasoline, you could say, is being relatively ignored while the market focuses more on distillate and buying there.”

Refiners’ profits from gasoline were $12.97/bbl on 10 November - a nine-month low - with gasoline futures at $2.6368/gal. On 1 February, profits were $15.04/bbl with gasoline settled at $2.5194/gal.

Gasoline demand has fallen in the US, and that has been reflected in the lower margins, said analyst Phil Flynn with PFGBest. Gasoline demand typically falls moving into the winter, but demand has been unusually low because of persistently high US unemployment and low consumer confidence, he said.

For the four-weeks ended 4 November, gasoline demand averaged 8.572m bbl/day, compared with 9.080m bbl/day for the same period in 2011, according to the US Energy Information Administration (EIA).

“This is a situation where crude is going up at the time and demand is going down, and that is going to hurt the margins for gasoline,” Flynn said.

Gasoline profit margins began to fall in the last week of September and accelerated in mid October. In late September, WTI crude oil was in the $80-86/bbl range, compared with a settlement of $98.99/bbl on Friday.

Despite the downturn in gasoline profits, they remain historically at record highs for this time of year. On 12 November 2010, gasoline profits for refiners were about $8/bbl. On 10 November 2011, profits were at $12.97/bbl.

DeHaan said profits are viewed differently because this year is a “unique situation.”

Profits are higher for refiners using West Texas Intermediate (WTI) crude and Canadian crude. Prices for these crude types have been relatively weak because the crudes are land locked, and therefore react more to domestic rather than international conditions, DeHaan said.

Brent crude is internationally traded and more influenced by global trading., said DeHaan.

Even though gasoline profits for refiners dropped to a nine-month low, profits are higher than past years because gasoline prices are higher. Comparing 2011 to 2010, gasoline futures settled at $2.6368/gal on 10 November 2010 and at $2.2362/gal a year earlier.

“I would say that gasoline prices remain higher [than] in years past due to optimism and far-reaching geopolitical tensions,” DeHaan said.

By: Sheena Martin
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