Midwest Refiners Enjoy Boon as Gasoline Prices Remain High

Higher gasoline prices and relatively low crude prices in the Midwest have created a perfect storm for refiners in the region, resulting in high profit margins. Strong demand, pipeline disruptions, and the approach of maintenance work at refineries have kept gasoline prices relatively high, leaving marketers with anemic profit margins. However, refiners are benefiting from the situation, with profit margins for gasoline production in the Midwest more than doubling West Coast margins in the first week of August.

Key Takeaways:

• Profit margins for gasoline production in the Midwest more than doubled West Coast margins in the first week of August, reaching $6.14/bbl compared to $2.76 on the West Coast.
• Strong demand, pipeline disruptions, and the approach of maintenance work at refineries have contributed to high gasoline prices in the Midwest.
• Midwest rack prices have risen faster than pump prices, leaving retailers with anemic profit margins.
• Analysts attribute pipeline disruptions as the main reason for stronger prices in the region, with hydrostatic testing and delays on the Explorer Pipeline Co. system being major contributors.
• The mothballing of refineries in Kansas, Oklahoma, and Indiana last year may have helped prepare the ground for the current rally in gasoline prices.

Statistics:

• $6.14/bbl: Gross margin for gasoline production in the Midwest (first week of August)
• $2.76/bbl: Gross margin for gasoline production on the West Coast (first week of August)
• 10 cents/gallon: Increase in spot-market prices for unleaded regular gasoline for prompt delivery in states west of the Mississippi
• 9.5 cents/gallon: Increase in prompt prices for unleaded regular gasoline in the Chicago area

Sources:

• "Midwest Gasoline Prices Higher Despite Refinery Maintenance" - Paul B. Ting, analyst at Oppenheimer & Co. Inc.
• "Oil Prices Firm, But Addicts Watch Crumbling Crack" - Tradewind Petroleum Services
• "Gasoline Prices Staying High Despite Lower Crude Prices" - Pegasus Econometric Group
• "Refinery Operations" - Purvin & Gertz Inc.