Downstream Profits Soar in 3Q 1994, but Uncertainty Lingers

Despite a surge in downstream profits, fueled by strong petrochemical demand and healthy retail gasoline margins, analysts warn that not all regions have seen a rebound. The East Coast and Gulf Coast markets, in particular, continue to struggle with low margins, while the Midwest and West Coast have seen improvements. As the industry navigates the implementation of reformulated gasoline in the upcoming first quarter of 1995, uncertainty remains about the sustainability of current profits.

Key Takeaways:

• Downstream profits soared in 3Q 1994, driven by strong petrochemical demand and healthy retail gasoline margins.
• Notable areas with low margins include the East Coast and Gulf Coast, where margins have been miserable.
• The Midwest and West Coast have seen improvements in margins, with the West Coast reporting middling results.
• The profitability of marketing extends beyond the domestic market, with noticeable gains in the United States, Europe, and the Far East.
• However, analysts warn that large margins are not sustainable, and the industry may face challenges in the 4Q 1994.
• Reformulated gasoline implementation in the first quarter of 1995 will disrupt normal seasonal patterns and potentially lead to price spikes and shortages.

Statistics:

• Retail gasoline margins improved overall in 3Q 1994, but remained low in the East Coast and Gulf Coast markets.
• The crack spreads, or gross margins, on the East Coast and Gulf Coast were miserable, while the Midwest and West Coast reported improvements.
• The driving season's end has contributed to a decline in product prices, with mild weather and low prices for natural gas also depressing sales of heating oil and residual oil.
• The Colonial Pipeline Co. ruptures near Houston have added to the pressure on retail prices.
• Refining margins are expected to improve in the Gulf Coast market but may fall in the Midwest due to pipeline disruptions and trading in conventional and reformulated gasoline.

Sources:

• "Downstream profits soar in third quarter, but margins expected to drop in fourth quarter" by Michael C. Young, Smith Barney Inc. (1994)
• "Retail prices for gasoline have been more volatile in the Great Lakes states and the rest of the Midwest than elsewhere in the country" by the American Automobile Association (1994)
• "Ashland specialists 'are convinced that what's different about the Great Lakes and the Midwest than all the other regions in the country is that there's a stronger predominance of independent marketers'" by Stan Lampe, Ashland Oil Inc. (1994)
• "Refiners delay turnaround on fluid catalytic cracker in Houston" by Bob Anderson, Tradewind Petroleum Services (1994)