Decline in Refinery Operations Drives Gasoline and Diesel Price Surge
Decline in Refinery Operations Drives Gasoline and Diesel Price Surge

Decline in Refinery Operations Drives Gasoline and Diesel Price Surge

  • 08-Mar-2024 12:51 PM
  • Journalist: Sasha Fernandes

Amidst shifting trends in early January 2024, U.S. refinery utilization has seen a notable decline of 11%, reaching a nadir of 81% during the weeks ending February 9 and February 16. This plunge briefly breached the five-year (2019–23) low, signaling a significant downturn in operational activity.

Despite retail average prices for gasoline and diesel in the United States remaining below their 2023 counterparts for this time of the year, diminishing inventories across major U.S. refining regions have propelled retail prices upward in recent weeks. The substantial drop in refinery utilization is attributed to reduced plant operations in both the Midwest and Gulf Coast regions, exacerbated by intensified seasonal patterns, consequently impacting inventories.

The most substantial impact has been witnessed in the U.S. Gulf Coast (PADD 3), where refinery utilization has seen the most pronounced decline. Over the course of the first week of January, the four-week average refinery utilization in the U.S. Gulf Coast plummeted by 14%, dipping below 80% over the subsequent two weeks. This reduction in refinery runs can be attributed to various factors, including weather-related challenges stemming from cold temperatures and planned maintenance activities. Unlike regions such as the Midwest, the Gulf Coast's infrastructure is less equipped for weatherization against extreme cold, which can lead to power outages or instrument damage, necessitating temporary shutdowns.

Notably, the current wave of Gulf Coast refinery maintenance commenced earlier than usual and has exerted a more significant impact on refinery operations. Notable among these maintenance shutdowns are those at the Motiva Port Arthur and Marathon Galveston Bay refineries, collectively accounting for approximately 7% of total U.S. capacity, equivalent to over one million barrels per day of processing capacity. Traditionally, planned refinery maintenance peaks during late February and March, contributing to seasonal fluctuations.

In the Midwest (PADD 2), bp's refinery in Whiting, Indiana, the largest in the region, experienced an unplanned outage, necessitating its offline status. This unexpected outage has significantly contributed to the nationwide reduction in refinery utilization, leading to a 10% decline in regional utilization since the beginning of January.

Meanwhile, in China, crude oil processing, or refinery runs, witnessed a record high average of 14.8 million barrels per day in 2023. This surge in processing activity coincided with the country's economic growth and expansion of refinery capacity in the wake of its COVID-19 pandemic responses in 2022. China's substantial increase in refinery capacity in recent years has been primarily aimed at meeting the nation's transportation fuel demands and supplying feedstocks for its burgeoning petrochemical industry.

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