From Reuters:
Summer driving season is in full swing and American motorists are filling their tanks at a healthy clip, but that is not swelling the profit margins as much as usual at U.S. independent oil refiners such as PBF Energy Inc (PBF.N) and Valero Energy Corp. (VLO.N)
In April, executives shrugged off the industry’s lousy first quarter as an aberration that would be remedied this summer.
“We still are bullish gasoline and bullish octane,” PBF CEO Tom Nimbley told investors in an earnings call back then. “The driving season really hasn’t hit that hard yet.”
Nimbley was right about the surging summer demand. But refiner margins are still being squeezed as gasoline and diesel inventories stubbornly sit well above five-year averages.
Summer gasoline demand usually fattens margins for refiners with seasonally high levels for the crack spread, the premium of a barrel of gasoline over a barrel of crude oil.
That will not happen this year, said analysts who expect the situation to remain bleak in the weeks ahead unless there are large drawdowns in inventories.
Late on Wednesday, the American Petroleum Institute, an industry group, assuaged some of those concerns, reporting a 3.6-million-barrel drawdown in gasoline stocks. Yet inventories remain much higher than they were last year at this time, and analysts have slashed earnings estimates for big U.S. refiners who report second-quarter results in coming weeks.
The situation is so dire that U.S. East Coast refineries have been cutting production. Refiners on the East Coast, known as “PADD 1” by the U.S. Energy Department, are typically the first to feel a profit pinch, because their margins tend to be thinner than those of other regions.
“PADD 1 is a holy mess,” said Andrew Lebow, senior partner at Commodity Research Group in Darien, Connecticut. “It is very unusual. If a market becomes extremely oversupplied, like PADD 1, they are going to have to cut runs.”
