The Energy Report
It's driving season and the wholesale market is now turned upside down. Yesterday, gasoline cracks fell below those of middle distillates like diesel and heating oil. Cracks represent the yields obtained from the sale of refined products versus the cost of crude oil inputs.
We warned of the shrinking margins available to gasoline refiners in A Short Crack Season?. Right now, traders are starting to think the summer driving season's going to be a big bust—at least as far as petrol's concerned.
NYMEX-Implied 3-2-1 Refining Margins
This spring, there was more money to be made by refining gasoline vs. other distillates. The profit margin derived from 3-2-1 operations (refiners turning three barrels of crude oil into two barrels of gasoline and one barrel of a middle distillate such as heating oil) was higher than that of 2-1-1 refiners (those breaking two barrels of crude into a barrel each of gasoline and a middle distillate) since mid-January. The 3-2-1 premium topped out at 1.44% on March 8. The gasoline guys were making a spot return of 14.49% while refiners cranking out more middle distillates were earning a gross 13.05% margin.
Cyclically, crack spreads peak in mid-May. In the recent past, the mid-May premium earned from heavy gasoline production topped out at 3.46% (not counting selloff year 2008, when middle distillates brought in a 3.51% premium over gasoline).
Yesterday, the middle distillate guys earned 0.04% more than the petrol pushers. Doesn't sound like much of a premium, but it's the fact that there is a premium that's important. It's an indication that the summer window is closing.
So, is the shallow premium attained from gasoline refining a signal of trouble ahead? Well, it sure isn't good news. If this is all that summer's going to offer—refiners' bottom lines are going to be more dependent on diesel and heating oil sales for the rest of the year.
Notable Quotes
"Uranium producers like EFR are going to start popping up on people's radar screens." (5/23/13) Energy Fuels Inc. - The Energy Report Interview with Matt Badiali More >
"The conservative uranium bet is to go with companies making money at current prices. That's FCU." (5/23/13) Fission Uranium Corp. - The Energy Report Interview with Matt Badiali More >
"CHK is active in the Marcellus sweet spot in northwestern West Virginia." (5/16/13) Chesapeake Energy Corp. - The Energy Report Interview with Josh Young More >
"FCU is on to the most exciting uranium discovery to come around in quite a while." (5/14/13) Fission Uranium Corp. - The Metals Report Interview with Brent Cook More >
"Majors like RDS are moving toward gas." (5/9/13) Royal Dutch Shell Plc - The Energy Report Interview with Keith Schaefer More >
Summer Preview: Gasoline Slumping
Source: Seeking Alpha, Brad Zigler (6/2/10)
"Traders think summer driving season's going to be a big bust."
More Experts
"ARW's new reserve estimate on West Hazel is a really good number." (4/30/13) Aroway Energy Inc. - The Energy Report Interview with Bob Moriarty More >
"TCF has already found 1 Tcf gas and is raising money to drill." (4/30/13) CBM Asia Development Corp. - The Energy Report Interview with Bob Moriarty More >
"I think everyone is expecting BSP's share value to grow." (4/25/13) Big Sky Petroleum Corp. - The Energy Report Interview with Jim Letourneau More >
"Things seem to be going well on the development front for MMT." (3/28/13) Mart Resources Inc. - The Energy Report Interview with Amin Haque More >
"FIS has the right management team that made not one, but two major discoveries." (3/21/13) Fission Energy Corp. - The Energy Report Interview with Marin Katusa More >