07-16-07 by dugan
The rise in gasoline prices being reported today, with the Midwest topping $3.30 while California stayed around $3.15, is further proof of the disconnect between oil prices and gasoline prices.
The Midwest is in the position where California was in May:
One refinery accident away from record pump prices. It suffered a fire at a huge BP refinery in Indiana, and a break in a pipeline from Texas,
and… zoom! Prices took off.
As in California in May, oil companies
will sell a little less gasoline, but for a higher profit per gallon,
and come out ahead. Yes, oil prices have been up in recent weeks, but with little effect on gasoline in most of the country because there is so much slack in this year’s record refiner profit margins. The biggest refiners could drop $10 a barrel from their profit margins as supplies get closer to normal, and still be above five-year average margins.
Here’s where Bloomberg pegged refinery profits in May:
"On the West Coast, profit margins are at an unheard of $39.88 per
barrel of crude oil processed [more than double the already-high West Coast average of $17.30, as the area suffered more refinery
glitches than the rest of the country. Margins in the Gulf Coast are at
$25.28 a barrel, the Midwest at $28.38 and the East Coast $17.31."
It’s too soon to know what margins are in the Midwest now, but it would be no surprise to see them close to the California highs.
Next week will be interesting because the Big Five–Exxon Mobil, BP, Chevron, Conoco Phillips and Shell–will all be reporting their second-quarter profit margins. If you like reading spreadsheets, the most heart-thumping line will be "downstream" profits, primarily from refining.