Refinery Runs Jump But Gasoline Production Remains Flat—Supply Slips

The run rate at domestic oil refineries ramped up 1.8 percent to 89.4 percent of capacity during the week-ended June 22, climbing from a 16-year low in the utilization rate for this time of year the prior week, the Energy Information Administration reports. Still, gasoline production was relatively flat at 9.342 million bpd despite the sharp increase in crude processed at domestic refineries.

“[S]ome analysts are wondering if magic might be the explanation for the near-record production of gasoline, even as refinery utilization dropped to the lowest percentage since at least 1991 for this time of year during the week ending June 15,” said analysts with the EIA in their weekly report on the market.

The EIA said that refineries can make operational adjustments or change the type of crude processed to increase the yield of gasoline that might keep crude inputs flat, noting that there is a strong economic incentive to produce gasoline. The analysts also said there can be a disconnect between crude inputs at refineries and gasoline output, as “there are ways to increase U.S. finished motor gasoline supplies other than the processing of crude oil through U.S. refineries.”

“[C]oncerns have focused on crude throughput declines as a result of crude oil distillation towers being under repair or maintenance,” said the analysts. “In these cases, refiners can produce more gasoline by increasing their use of unfinished oils to use as feedstocks to units downstream of the crude tower, such as the fluid catalytic cracking unit or the coking unit. These unfinished oils may come from other U.S. refiners or from imports.”

The EIA highlighted a 6.4 million bbl decline in inventory levels of unfinished oils during the six-week period ended June 22, which is a consumption rate of about 150,000 bpd, as one indicator this is taking place.

“Second, consider blending activity at terminals that results in finished gasoline production. Blenders combine materials such as alkylate, RBOB, ethanol and other gasoline blending components into finished gasoline, which is included in U.S. gasoline production,” said the EIA.

The EIA said net inputs of blending components to refineries and blenders have averaged nearly 500,000 bpd during the two-month period ended June 22, which is well above the year-ago total. The EIA said that while domestic refineries produce gasoline blending components, imports make up most of that volume.

“Some analysts have speculated that once refinery utilization did increase back to more typical percentages for this time of year, we would see a substantial increase in the already high gasoline production volumes,” said the EIA, who noted that didn’t happen.

“It is certainly plausible that as refineries return to operation after maintenance, that gasoline production from unfinished oils may decline,” said the analysts. “Regardless of how gasoline is produced, the gasoline market remains tight with inventories remaining below the average range.”

The EIA shows gasoline inventory levels slipping 700,000 bbl to 202.6 million bbl during the week-ended June 22, which is down 11.8 million bbl or 5.5 percent against the comparable week a year-ago.

Implied gasoline demand during the four weeks ending June 22 is 9.537 million bpd, which is 129,000 bpd or 1.4 percent above the same period in 2006. Year over year, preliminary data from Jan. 1 through June 22 also reflects a 129,000 bpd or 1.4 percent demand growth rate for gasoline.