LITTLE ROCK — Profits from turning crude oil into gasoline are dropping from record highs as U.S. refiners return units to production after closing them for repairs.
The crack spread fell three consecutive days after reaching an all-time high of $44.03 a barrel Feb. 22. A crack spread is the difference between the cost of crude oil and the price of a refined petroleum product such as gasoline.
The spread was inflated by concern that refinery breakdowns, seasonal maintenance and the closing of a New Jersey plant would curtail supply just as warmer weather increases demand.
Refiners are taking advantage of the historically high profit margins in the first quarter to raise production even as planned maintenance during the period was 45 percent above normal. U.S. plants operated at 85.1 percent of capacity last week, the highest rate for this time of year since 2007, government data show. Gasoline output climbed to the highest this year and imports rose, easing concern that a decline in supplies will push average pump prices above $4 a gallon.
“The unplanned outages have come back, and the crack spreads are fantastic and refiners will run at record high levels,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London. “Gasoline was overdone. It’s a market where there is tightness, but it’s coming back to levels that are sustainable.”
Regular gasoline at the pump averaged $3.78 a gallon Thursday, AAA said on its website. In Arkansas, the average price per gallon was $3.62, down from $3.65 a week ago.
The crack spread versus Brent crude, which reached $23.06 a barrel Feb. 22, was $19.75 on Thursday. That’s still 42 percent higher than $13.89 a year ago.
“Short-term, the rally is over with,” said Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pa. “The cracks are still huge and refiners have incentive to produce gasoline once they come back after maintenance.”
Pump prices are climbing more slowly as crude oil has slipped this month, according to Trilby Lundberg, president of Camarillo, Calif.-based Lundberg Survey Inc.
“There’s reason to expect the price rise will not continue at this pace and may even end soon because crude oil prices are down and refiners are starting to cut wholesale prices to their marketing and retail customers,” Lundberg said.
Refinery rates in the U.S. jumped the most since September last week from 82.9 percent, an 11-month low, Energy Information Administration data show. Rates may increase further as more plants return to operation.
“With the return of a significant number of [refineries], gasoline supplies are expected to improve,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “The expectation is refineries are going to run at historically high levels after maintenance.”
Hess Corp. said on Jan. 28 that it would close its Port Reading, N.J., plant, removing 7.7 percent of East Coast gasoline-making capacity, according to Lipow. The site closed Wednesday.
Gasoline was the best performer on the Standard & Poor’s Goldman Sachs Commodity Index this year through Feb. 15, gaining 11 percent. Since then, prices have dropped six out of seven days, leaving it up 3.3 percent in 2013.
Planned turnarounds between January and March took 1.13 million barrels a day of crude processing capacity off-line, a 45 percent increase from the five-year average of 780,000 barrels, according to IIR Energy, a Sugar Land, Texas-based energy-information provider. From April to June, that figure will drop to 676,000barrels, 35 percent above the five-year average.
“You’ve had massive outages throughout the U.S. and an extremely high maintenance period this year,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “But they’re all going to come back. We’re in danger of a pullback. I think summer-grade gasoline is going to get ugly.”
In addition to the increased refinery supply, imports rose last week, Energy Information Administration data show. Shipments of gasoline to the U.S. from abroad increased 70,000 barrels to 575,000 barrels a day.
“The thought of any kind of major supply shortage this summer is unlikely,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “Plenty of supply is going to come.” Information for this article was contributed by Dan Murtaugh.
Business, Pages 29 on 03/01/2013