Valero expects lower refinery utilization as margins tank
(Reuters) Valero Energy Corp. expects lower refinery utilization over the rest of the year as companies step up efforts to counter slumping refining margins caused by record supplies of gasoline and diesel products.
Analysts have said the market will be unable to soak up the gasoline that refiners stockpiled ahead of a summer driving season unless demand surges.
The glut in refined products pushed down Valero's refining throughput margin to $8.93/bbl in the second quarter ended June 30 from $13.71/bbl, a year earlier.
"Refinery utilization has been such that supply has been able to keep up and even outpace demand, so ultimately we are going to need a rebalancing and see lower refinery utilization," said Gary Simmons, senior vice president of supply, international operations and systems optimization at Valero.
The company expects combined throughput to fall marginally to 2.79 MMbpd at its 15 refineries in the third quarter, from 2.83 MMbpd in the second quarter.
Valero said it expects 94% capacity utilization at its refineries in the third quarter, unchanged from the second quarter.
Refiners are also being pressured by a rise in global oil prices, which hit six-month highs in June, and higher costs for the renewable fuel credits.
BP's refining margins hit a six-year low in the latest quarter and the company said margins would remain under significant pressure in the coming months.
Valero said biofuel blending costs more than tripled to $173 M in the latest quarter, primarily due to the purchase of the credits known as Renewable Identification Numbers (RIN).
The company said it continues to expect the cost to be in the range of $750 M to $850 M this year.
Valero's credit costs were $440 M in 2015, according to filings reviewed by Reuters.
Operating income from Valero's ethanol business fell about 36% to $69 M in the second quarter.
Reporting by Amrutha Gayathri and Arathy S Nair; Editing by Sriraj Kalluvila and Swetha Gopinath
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