Amid refinery snags U.S. gasoline output near record

By Robert Campbell - Analysis

NEW YORK (Reuters) - Despite operational problems that have kept U.S. refineries running at rates well below normal levels for weeks, gasoline production in the United States is nearing record highs.

U.S. gasoline output last week was nearly 9.33 million barrels per day, tying the fifth highest weekly tally posted the week of December 29 of last year, according to data released Wednesday by the U.S. government's Energy Information Administration.

"Margins are very good so we have an incentive to produce gasoline," said Bill Day, a spokesman for Valero Energy Corp. (VLO.N).

Last week's gasoline output was 117,000 bpd above year-ago levels and only 43,000 bpd away from the all time high set the week of December 22, 2006, even as refineries operated at only 89.2 percent of capacity. During the same week last year U.S. refineries ran at 92.7 percent of capacity.

"The data on refinery output imply that despite the glitches and extra turnarounds this year, refineries are getting more efficient at converting crude oil to clean products," wrote Southeast Energy analyst and trader Tom Mooney in a research note released Wednesday.

Analysts say a combination of higher than normal gasoline output at the U.S. refineries that are running and increased blending of imported semi-finished gasoline is helping the U.S. oil industry keep pace with strong demand.

"There is an increase in blending going on but the refineries themselves may be taking what we might classify as unfinished oils or some other products and processing it to get gasoline," said EIA analyst Doug MacIntyre.

Gasoline production on the East Coast, home to most of the major gasoline blending operations in the United States, hit a record high level of over 2 million barrels per day last week.

IMPORT DROP-OFF

The heavy reliance on blending, however, underscores the United States' increasing reliance on imports of blendstocks, said McIntyre, who noted that a drop-off in gasoline blendstock imports this week could translate into lower finished gasoline output next week.

However blending activity may be bolstered by increased refinery production in coming weeks as a number of key facilities are due back from maintenance work.

Refinery utilization would have risen last week if not for a large planned maintenance shutdown at Chevron's (CVX.N) Richmond, California, refinery. Exxon Mobil (XOM.N) is expected to restart nearly 400,000 bpd of crude distillation capacity at its Baytown and Beaumont refineries in Texas in the coming weeks.

Gasoline-making fluid catalytic crackers at four Valero refineries on the Gulf Coast are also due to return from unplanned work soon. And maintenance turnarounds at several small refineries in the Midwest are due to be completed by the end of the month.

Although the U.S. oil industry has kept pace with strong early summer demand for gasoline, analysts and traders warn that with inventories still below normal levels, a significant moderation in prices is unlikely.

U.S. gasoline stocks lost this spring amid extensive refinery outages have yet to be fully replaced despite a recovery in stocks since early May. Gasoline inventories stand at 21.3 days of supply, the EIA said Wednesday, compared with 22.8 days last year.

"With the heart of the driving season upon us the market's wall of worry regarding gasoline supplies will begin to build again unless utilization ramps up rather quickly," said Christopher Jarvis, senior analyst at Caprock Risk Management in New Hampshire.