Heavy Oil Shortage Hinders US Refiners

Aglobal shortage of heavy crude will create hurdles for America’s key refining belts just as they ramp up gasoline production for the summer.

In the Gulf Coast, dwindling heavy oil supplies have suppressed refining margins, while Midwest refiners may not reach the high run rates seen last summer, Bloomberg reported.

Gulf Coast profits from coking -- a process where heavy crude is broken down into fuels such as gasoline and diesel -- are already at their lowest levels in nearly a decade, according to data from Oil Analytics Ltd.

The decline comes as a loss of crude supply from sanctions-hit Venezuela and Iran, as well as production cuts by Canada and OPEC, have driven up the price of fuel oil, which is used to make gasoline through the coking process.

Gulf Coast fuel oil, a byproduct of heavy crude, reached a six-month high in late April.

Gulf gasoline prices in the run-up to summer are also below the five-year average. Still, slimmer profits will not necessarily mean less production.

Margins are weak, but "we do not expect any run cuts," said Jan-Jacob Verschoor, director of Oil Analytics Ltd., which studies refinery economics.

Refineries in the region rely on Western Canadian Select, a heavy crude that has recently gotten cheaper after Alberta’s government eased some production limits.