Increased profit margins for diesel fuel exports have boosted
U.S. diesel production over the past five years and tightened
domestic gasoline supplies, contributing to rising gasoline
prices in 2012.
U.S. oil refineries, whose numbers have been falling for years
because of poor profitability, have found that selling diesel
overseas commands a higher price than it does in the U.S., where
the profit margin on gasoline can often slip into negative
territory. That has led the struggling refinery industry to
maximize its production of diesel fuel, part of a family of
petroleum products known as distillates.
"In general, a refinery takes a barrel of crude, [where] the
higher margin comes from distillates, so a refinery will opt for
more diesel if possible," said Anne Cameron, an analyst at BNP
Paribas.
Production of distillates increased roughly 3.5 percent from
March 2007 to March 2011, according to James L. Williams, owner
of WTRG Economics, an oil and gas consulting firm in London,
Arkansas. Williams added that production of distillates has
"definitely" grown to increase exports.
The U.S. now exports close to 600,000 barrels of distillates a
day. Moreover, the U.S. is now a net exporter of petroleum
products, exporting slightly more than 1 million barrels a day, a
change from 2007 when the nation imported roughly 2 million
barrels a day. The bulk of petroleum product exports are to South
America, Mexico and the Caribbean.
Exports of distillates in 2011 rose 30 percent from a year
earlier, said Timothy Hess, an analyst for the U.S. Energy
Information Administration.
"[Refineries are] producing a little bit more (distillates)
than they used to because the margins you get globally have been
so strong ... they've kind of been tweaking that up to increase
the amount of diesel," he said.
Motiva Enterprises LLC, a 50-50 joint venture between Royal
Dutch Shell Plc's American subsidiary Shell Oil Co. and Saudi
Aramco, has been increasing exports of U.S. produced fuels. The
Houston company is expanding its Port Arthur, Texas refinery's
capacity to increase its diesel production and take advantage of
high export prices, the Wall Street Journal reported
recently.
When U.S. refiners maximize the production of diesel fuel,
however, as they have been in recent years, it reduces the amount
of gasoline produced.
The EIA said U.S. refineries are capable of increasing
distillate production -- at the expense of gasoline production --
by approximately 3 to 5 percent over historic yields, according
to a 2010 report from the EIA. Because the supply of gasoline
being produced has been lowered to increase the supply of
distillates, the market has tightened for gasoline, pushing
prices higher.
"[Increased distillate production) certainly has had a
pressuring effect" on gas prices, said Avery Ash, AAA's manager
of regulatory affairs.
If oil refining companies hadn't shifted focus to producing
distillates, "we'd have too much gasoline and not enough
distillate," making gasoline cheaper as the supply increased and
tightening the international distillate market, WTRG's Williams
said.
Meanwhile, retail gasoline prices in the U.S. continue
climbing. The average price of gas nationally reached a 10-month
high of $3.89 a gallon on Wednesday.
The rise in prices, due to increased distillate production
putting pressure on gasoline supplies, has been compounded by
refinery closures in the Northeast. Four east coast refineries
have closed in the last year.
"Imports are actually up at the same time [as exports] to
supply the East coast ... a lot of it is coming from Europe,"
AAA's Ash said, adding that importing gasoline drives up
distribution costs.