US refining margins in red in most regions-report
Tuesday May 14, 12:05 PM EDT
NEW YORK, May 14 (Reuters) - U.S. refining profit margins fell below breakeven in most regions of the country last week, raising the specter of gasoline production cuts just as peak summer driving demand arrives, according to a report released Tuesday by Salomon Smith Barney.
Average U.S. gross refining margins dropped more than $1 a barrel to $2.50 a barrel during the week ended May 11, marking the fourth consecutive weekly decline due to high crude oil prices and relatively moderate prices for gasoline and distillates, according to Salomon Smith Barney's weekly margin report.
Gross margins exclude normal operating costs for a refinery, which vary from region to region. When operating costs exceed the gross profit margin, refiners are operating at below their break-even point.
The weakest margins are on the East Coast for Brent-based production at $1.40 a barrel, while the highest are in the Midwest at $4.40 a barrel, according to the report.
Refining margins in all production regions, except for the Midwest, were below breakeven, including the normally profitable California market, which dipped to "the lowest level on record," according to the report.
The gloomy refining landscape has fostered fears that U.S. oil firms will reduce fuel production in the coming weeks, just as summer travelers fill up their tanks for road trips.
Orion Refining Corp. last week announced it cut back production at its 155,000 barrel per day (bpd) Norco, Louisiana, refinery to roughly 50 percent for the rest of May -- sparking concern that other refiners in the Gulf Coast hub will soon follow suit.
Meanwhile, oil products traders in the Northeast said this week that both Valero Energy Corp. (VLO) and Phillips Petroleum Co. (P) were planning to reduce production at their New Jersey refineries due to particularly poor margins for running European Brent crude oil.
Both Phillips and Vero declined comment on the reports.
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