NEW YORK (Reuters) - U.S. refiners are cutting output to reverse slumping profit margins due to record high inventories ahead of the critical summer driving season.
Profits for making gasoline have hit their lowest levels for a year as higher prices at the pump combine with the seasonal lull in demand from motorists to cut consumption and push up inventories.
Refiners are hoping that cutting runs will prevent a repeat of last winter, when the industry amassed huge gasoline stockpiles that even a record summer driving season failed to draw down.
At least three refineries have cut runs, according to executives and industry sources. More are expected to follow if routine maintenance shutdowns don’t ease the supply glut, said Mark Broadbent, refinery analyst at Wood Mackenzie.
Marathon Petroleum Corp has cut production by 11 percent to 195,000 barrels per day (bpd) at its Catlettsburg, Kentucky, refinery over the past month, a source familiar with the plant’s operations told Reuters on Tuesday.
PBF Energy has cut runs at two plants, Chief Executive Tom Nimbley told investors last week.
The company ran its 180,000-bpd refinery in Toledo, Ohio, at reduced rates in the fourth quarter due to weak margins, he said.
PBF also shut the sweet crude unit at the company’s Chalmette, Louisiana, refinery for economic reasons.
Refiners producing fuel that was going into storage should be concerned about being “on a fool’s errand,” Nimbley said
Marathon declined to comment on the cut in Catlettsburg.
The cuts come even as refiners shutter unit for seasonal maintenance after winter demand subsides. The shutdowns should help eat into inventories.
More refiners will follow suit and cut runs if stockpiles are still high when the maintenance season ends, Broadbent said.
U.S. gasoline stocks rose by 2.8 million barrels to a record 259 million barrels last week, according to the latest data from the Energy Information Administration.
U.S. gasoline margins sank on Tuesday to their lowest levels in a year.
U.S. refiners are expected to spend $1.26 billion on planned maintenance next year, up 38 percent from this year and the highest level since at least 2010, according to Industrial Information Resources (IIR), which tracks labor supply for refiners and other industrial companies.
Last winter, U.S. refiners switched to maximum gasoline yields earlier than usual, leading to huge stockpiles and the industry’s worst financial performance in years.
Refiners would be foolish to repeat that mistake this year, Nimbley said.
“We’ve got to really look at these inventories, and shame on us if we fall into the same trap that we did last year,” he said.
Editing by Simon Webb and Sandra Maler