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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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American Refiners' Record Profits Won't Last

  • Summer demand for gasoline in the United States has declined over the past two weeks.
  • After nearing $60 per barrel in June, the U.S. 321 gasoline crack spread fell last week to $37.57 per barrel.
  • Rising gasoline inventories in the U.S. and China may discourage refiners to further cut gasoline production.
Valero refinery

While U.S. refiners are set to post over profit hikes of over 600% for the quarter, and global refiners are also reeling in revenues, the precipitous fall in gasoline prices and consumption over the past two weeks could reverse that going forward.

After nearing $60 per barrel in June, the U.S. 321 gasoline crack spread fell last week to $37.57 per barrel, according to Reuters, with the EIA noting that while refinery production increased in June to take advantage of the high crack spread, gasoline demand began to decline in April. 

Summer demand for gasoline in the United States has declined over the past two weeks, and in some parts of Asia, seasonal demand is also down, while gas prices are lowering and stockpiles are growing.

In the United States, gas inventories reported by the EIA last week showed a build, while gasoline prices have declined below a national average of $4.50 per gallon, with slowing summer gasoline demand. 

In China, refiners are expected to add to the inventory over the next two months, and inventories have increased across Asia and Europe. 

According to Reuters, overall gasoline margins in Asia have fallen by 102% this month, discounted 14 cents against a barrel of Brent and at their lowest for the time of year in over two decades. Asian refining margins down 88 cents per barrel over Dubai crude.  

The overall sentiment is that refiners will now have to further cut gasoline production. 

That is a reversal of the story about to be told by Q2 earnings for refiners. 

Last week, analysts from Tudor Pickering Holt & Co said that U.S. refiners were set to report a 652% jump in average earnings per share (EPS) for a period that has seen the highest U.S. gasoline prices on record, topping $5 per gallon in early June. 

“We’re seeing margins twice as high as the golden age,” Charles Kemp, a vice president at energy consulting firm Baker & O’Brien Inc, told the Wall Street Journal, in reference to profits booked from 2004 to 2007.

By Charles Kennedy for Oilprice.com

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  • Ian St. John on July 25 2022 said:
    Don't count on it. Global prices may go up or down (most are betting up) but the refineries profits are set by restricting refining (and refinery output), so that prices boom during slightly higher demand (supply lower than demand). They will use the current 'inflation bubble' to increase the profit margins expecting the consumer to shrug it off.

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