HOUSTON—Texas fuel producers are still working to restore operations that were knocked out by February’s historical winter storm, but they’re also watching improvements in the market and may be reluctant to come back at full throttle, Bloomberg reports.
The market suffered during the past year because of COVID-19, and several plants were forced to close or reduce production. Even as the market beckons with fatter profit margins, tighter inventories and signs of rising demand, refiners are cautiously weighing the risk of again being stuck with a glut of fuel supplies. The result is a steady increase in gas prices.
It's easy to see why they would be tempted to be cautious. Gasoline inventories on the Gulf Coast plunged by 11 million barrels in the week ending Feb. 26 as the region’s refining capacity sank to a record low of less than 41%, while gasoline demand rose the most since May. The theoretical profit margin for refining crude oil into gasoline and diesel, known as the crack spread, is trending near its highest since February 2020.
But demand for fuel remains significantly lower than in March 2019, when there was no pandemic, and no one can predict when life will return to normal. Refiners are also facing rising costs for tradeable credits known as RINs that are used to show compliance with the nation’s Renewal Fuel Standard.
“Margins have improved a lot, especially FCCs,” said Robert Campbell, head of oil products research for Energy Aspects Ltd. “But RINs are a killer. Adjusting for that, margins are not so great.”
As of Friday, seven of 18 Texas refineries impacted by the storm, including those that shut all or some units, were able to operate normally. Most of the remaining refineries expect to restore operations by the end of this week.
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