Posted in: Infrastructure,
by Patrick DeHaan on Mar 30, 2010 01:05 PM
With refinery operations desperate to post acceptable profits again (they've been beat up the last year), temptation is showing as some refiners delay performing spring maintenance and schedule it for autumn months, when profit margins are expected to be weaker.
It's a big gamble that has the potential to pay off for refiners, who would rather produce fuel now than during the fall months, when demand weakens. Today's crack spread, or the amount of money for turning oil into gasoline and distillate fuel is around $9-$12/barrel. The choice is to either do maintenance now, shutting down when margins are finally acceptable, or wait until autumn, when prices typically fall.
The news of more refineries delaying their maintenance until fall is good news for motorists, as news of these maintenance changes puts another ceiling on how high prices will go, since refineries will focus on boosting production.
In recent days, I've heard sources say that BP's facility in Whiting, Indiana will partially delay maintenance until the autumn as the refiner focuses on boosting output while margins are acceptable. This will be good for motorists because it means one of the nations largest facilities will continue to increase output of summer gasoline, limiting concern about healthy inventories weeks before the Memorial Day weekend and the official start of the summer driving season.
Be sure about it, refiners could do maintenance and could bolster margins, but at this point, they'll take a smaller guaranteed margin over the risk that comes with higher profit, especially as refining operations are increasingly hemorrhaging money (although not as bad the last few months).
In other news, several refineries that have closed in the past few months are closer to having new owners, which will mean increased spare capacity, putting another ceiling on how high things go this summer. The news represents another step in the right direction as demand is expected to rise in the coming months and years.