NEW YORK (Reuters) - U.S. refiners have switched to making summer-grade gasoline earlier than usual as profit margins to make the fuel have improved compared with those for the spring months, market sources said.
Summer-grade gasoline is more expensive to make than gasoline for the spring, but stronger margins for contracts expiring in June and July promoted refiners to switch to the summer grade a few weeks earlier than usual.
Refiners briefly produce a transition-grade fuel during the spring but usually shift to summer-grade gasoline by late March ahead of the required May 1 date.
This year, the switch has already happened, traders said.
Gasoline margins for April fell to their lowest since 2010 seasonally at $19.41 a barrel on Tuesday, before recovering marginally on Wednesday. Gasoline margins for July rose to a high of $20.16 a barrel.
The U.S. Environmental Protection Agency requires gasoline produced for warmer months to carry a lower Reid Vapor Pressure (RVP), a common measure of the volatility of gasoline. Lower RVP gasoline reduces emissions by evaporating less easily into the atmosphere.
U.S. demand for transportation fuels like gasoline and diesel tends to rise during the driving season, which kicks off on the Memorial Day holiday in May.
While gasoline margins have declined, overall refining margins including distillates like diesel and jet fuel have been strong, in addition to firm margins for summer gasoline. The early switch to summer blend could swell inventories heading into the summer, pressuring prices, some traders said.
Refiners are operating at nearly 92 percent of capacity, a 20-year high for this time of year, according to U.S. Energy Department data. Gasoline inventories in the Gulf Coast are near their highest in more than a year.
“There’s always an incentive to store components for the summer,” said Robert Campbell, head of oil markets research at Energy Aspects. “There’s certainly an expectation that there is a need for this stuff, and that there may be a return to storing it.”
Cash trading also showed increased demand for summer gasoline. ExxonMobil was seen offering F1 summer-grade gasoline on the Colonial Pipeline in the Gulf Coast, traders said. F1-grade gasoline was seen trading about 7 to 5 cents a gallon below benchmark futures whereas F3 transitional-grade fuel traded around 22 cents per gallon below benchmark futures early this month.
Summer gasoline shipping on Colonial is expected to reach New York harbor by early April, traders said.
Reporting by Devika Krishna Kumar and Jarrett Renshaw in New York; Additional reporting by Ayenat Mersie; Editing by Richard Chang