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| U.S. refinery rate drop shows crisis in downstream
Reuters via Calgary Herald ^ | Jan 21, 2010 | Joshua Schneyer and Rebekah Kebede
Posted on Sunday, January 24
U.S. crude processing plants cut activity last week to the lowest utilization rate since the 1980s, excluding hurricanes, the latest sign of crisis in the world’s top oil consumer.
U.S. refinery utilization dropped to 78.4 per cent of total capacity 17.6 million barrels per day, down 2.9 percentage points from the previous week, Energy Information Administration data released Thursday showed.
The last time utilization of U.S. refining capacity fell to these levels was in the 1980s, excluding 2005 and 2008 when activity cratered due to hurricane-related refinery outages.
The slump in refinery utilization comes on the heels of falling oil demand in the United States, triggered by the financial crisis. U.S. demand has dropped by around two million bpd since it surged to 21 million bpd in 2007. Cleaner fuel standards and more use of biofuels have also cut into refining profits.
“There’s lots of spare oil capacity from OPEC, lots of spare refining capacity, and lower demand for crude,” said Tim Evans, energy analyst at Citi Futures Perspective in New York. “The conditions today look a lot like they did in the 1980s, which was a lost decade for oil refiners.”
Dismal refinery margins have persisted since 2007 in the United States, the site of nearly a fourth of world refining capacity, eating into refiner profits.
Oil majors Chevron and ConocoPhillips each warned in the past weeks of poor conditions for their refining operations. Last year, several refiners including Valero Energy Corp., Sunoco Inc. and Flying J shut U.S. refineries for economic reasons, while many more idled units to stem losses.
When Valero shuttered its Delaware plant, the facility was losing $1 million a day, according to the company.
And experts say more closures are inevitable.
“There have to be more closures. Either that or we better fairly quickly have a five to six per cent global demand growth . . . (but) the likelihood of such is remote,” said Mark Gilman, an oil analyst at Benchmark Co., adding the U.S. refining industry may face a raft of plant closures similar to what it saw in the 1980s.
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US Refinery Activity to lowest rate since 80's
