Valero announced it will premanently close the 210,000 barrel per day Delaware City refinery. This follows Sunoco's earlier closure of the Eagle Point refinery and Western Refining's shutting down the Bloomfield refinery. Some industry executives are now saying that US gasoline consumption will never reach 2007 levels again because of the push for alternative fuels and stricter fuel economy standards. The real reason that these refineries were closed, however, is deteriorating levels of demand, down 3.8% this year compared to last year. The reason that crude futures are even this high has to do with speculative demand and not fundamentals. This is why it is hard to believe that the economy is turning around when demand continues to crater.
The shuttering of the Delaware City refinery is instructive because it fits the Valero strategic plan in that it processes heavy sour crudes. Six years ago at an OPIS supply summit in Vegas, when I was struggling to find supply in the Rockies, then Valero CEO Bill Greehey boasted he was buying heavy sour crudes for a discount of $12-$16/bbl and that all Valero's refineries were configured to process the heavy sours. Today, the discount is not enough to make Delaware City profitable. And as an Indy Valero has no crude sources. Refinery utilization is now below 80%.
We may be looking at a return to $60 crude if the economy continues to falter no matter what the Government says about 3.5% growth in the 3Q. A quick count of the three refinery closings shows a loss of 1,050 jobs not including contractors and suppliers to the refineries.
For the day, Crude -$0.72, gasoline +1 cent, distillate, awash in inventory, -2.2 cents.
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