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Higher-Cost Oil Can Squeeze Margins at US Refineries
Higher-Cost Oil Can Squeeze Margins at US Refineries

Higher-Cost Oil Can Squeeze Margins at US Refineries

Higher-Cost Oil Can Squeeze Margins at US Refineries

US refiners could face a continued squeeze on profit margins in the months ahead, as dwindling supplies of heavy crude from Venezuela and elsewhere are leading several to switch to higher-priced but easier-to-refine light, sweet crude.
The shift also could mean higher prices for US consumers in the last weeks of the summer driving season and into the fall if refiners are able to pass along those higher costs to drivers, analysts said, Reuters reported.
PBF Energy Inc, Valero Energy Corp, Phillips 66 and Marathon Petroleum Corp said in earning calls over the past two weeks they are running more light crude as a result of narrower discounts for heavy crude. ExxonMobil Corp also is running a heavier slate of light crude at a Gulf Coast plant.
Refiners' "margins have already been heavily impacted," said John Auers, executive vice president at refining consultancy Turner, Mason & Co. "They will be impacted in the third quarter" as well, he added. Auers said the final period's outlook could depend on whether the US applies sanctions on Venezuelan imports.
In part, the companies are reacting to high costs and anticipating weaker supplies of Venezuelan crude coming to the United States. Heavy crude prices also have been impacted by tax changes in Russia that have raised prices of its heavy crudes and by reduced production from Canada last quarter.
Through June, US imports of Venezuelan crude declined 7.1% compared with the same six-month period of last year, to 654,078 barrels per day, according to Reuters data.
Light, sweet crude costs more than heavier oils, narrowing the discount that US refiners, especially those along the Gulf Coast, have gained by configuring their plants to run heavy, sour crude over the past 20 years.  Marathon's second-quarter income from its refining and marketing operations fell in part due to "unfavorable crude oil and feedstock acquisition costs, primarily due to lower sweet/sour crude oil price differentials", the company said on Thursday.
PBF also said narrower heavy crude discounts contributed to its second quarter loss of $1.01 a share, compared to Wall Street expectations of a 2-cent a share gain.
Exxon is studying adding a light crude-processing unit at its Beaumont, Texas, refinery early in the next decade, spokeswoman Charlotte Huffaker said this week. It would be the second light-crude processing unit at the plant.
"These investments reflect the increased availability of abundant, affordable supplies of US light crude," Huffaker said in an email.

 

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