US refiners carry on processing despite gasoline glut

Fears that US refiners will cut crude processing in response to deteriorating margins and rising gasoline stocks have haunted the oil market for the past two months.
But so far there are few signs that US refiners are actually making voluntary "economic run cuts" as a result of the glut of gasoline and sharp falls in gasoline prices.
US refiners processed an average of 16.7 million barrels of crude per day in the last four weeks, unchanged from the same period in 2015, according to the US Energy Information Administration.
Refiners on the East Coast have cut throughput by 70,000 barrels per day (6 percent) compared with the same period last year leaving the region processing 1.1 million bpd.
But the much larger Midwest refining region has seen throughput increase by 25,000 bpd (0.7 percent) compared with 2015 pushing the crude processing up to 3.7 million bpd.
On the Gulf Coast, the largest refining region of all, average throughput is essentially unchanged from 2015 at 8.7 million bpd.
In theory, refiners could have processed even more crude this year through investment in new distillation units and de-bottlenecking.
Refineries have increased their crude distillation capacity by nearly 400,000 bpd over the last 12 months with most of the extra capacity added in the Midwest (+80,000 bpd) and on Gulf Coast (+280,000 bpd).
Instead, refiners have chosen to keep throughput unchanged, leave extra capacity idle, and cut their utilization rate from 95 percent to around 92.5 percent.
In some sense, the decision to leave capacity idle and lower the operating tempo could be seen as an implicit run cut.
But as a practical matter there is little sign of refiners making substantial reductions in throughput in a bid to cut gasoline stocks and support prices.
Instead, refiners seem to be relying on changes to downstream processing units to adjust the balance between gasoline and distillate production. In recent weeks, the balance has tilted slightly in favor of diesel production.
Diesel stocks are also higher than normal, even when adjusted for the growth in demand, but unlike gasoline stockpiles they are within the 10-year range and margins are much higher.
Rather than cut crude throughput, refiners are opting to produce more diesel in a bid to limit the oversupply of gasoline.
Switching the balance of fuel production is a rational response to market prices which show much better margins for distillates.
Hedge funds, too, are bullish about the outlook for distillate prices with winter coming whereas they have rarely been so bearish about gasoline.
But the switch has not been enough to start working down the gasoline surplus which has continued to worsen in recent weeks.
And the risk is that refiners are merely displacing the oversupply problem from gasoline to distillates if freight demand does not pick up or the forthcoming winter is relatively mild. 

Source: Arab News