Oil Refiners’ Production Lows, Profit Highs

Fires. Explosions. Lightning strikes. This is the new state of affairs for U.S. oil refiners, hobbled in recent months by an unprecedented plague of bad luck and operational setbacks from California to Delaware [see BusinessWeek.com, 4/26/07, “$4 Gas? Fat Chance”]. Facilities of all sizes and age have been struck, leading to supply bottlenecks in various regions.

On May 2 the Energy Dept. reported that refineries are operating at only 88.3% of capacity, barely above the 20-year low notched last week. Not surprisingly, gasoline inventories dropped for the 12th week in a row–the first such three-month stretch since 1993. All that has set gasoline prices on a dramatic bull run, with refiners’ stocks setting all-time highs and U.S. consumers facing average pump prices of $2.98.


What’s gone so wrong in refining?

“They’re cursed,” says Phil Flynn, an analyst with Alaron Trading in Chicago. “You can argue that the refineries are old and they’re squeezing more blood from the turnip than ever, but that explanation doesn’t cut it. Maybe Al Gore has cast a spell on the industry.”

Business Week