The dog days of summer have come and gone. After a relatively stagnant driving season, gasoline inventories fell by 3 million barrels heading into the Labor Day weekend. In a last hurrah to rival your family cookout, the refiners enjoyed a brief day in the sun.
Industry bellwether Valero
In addition, Valero announced plans to close the coking and gasifier operations at its Delaware City refinery, and extended closings of a coking unit and a cracking unit at Corpus Christi -- likewise for an indefinite period, pending improvements in related profitability metrics. The coking units that will remain online will operate at reduced capacity.
Coking units produce a petroleum-based coke from refining byproducts that can be used as a fuel course, and gasifiers convert that coke into a cleaner-burning synthetic gas fuel source. Refiners will have a difficult time justifying the operation of gasifiers as long as natural gas prices remain in the dumps. With natural gas producers like Chesapeake Energy
The metrics for profitability of coking operations are similarly bleak. As Valero spokesman Bill Day said: "No one really knows when coking margins will improve, that will depend on the economy rebounding and it will depend on the differential between light sweet crude and heavy sour crude." The weakened economy has resulted in a large oversupply of distilled products, meaning that these margins would lag even a substantial recovery in demand.
Valero also announced that it cut capital spending again for 2009, while competitor Tesoro
Continued closings and an industrywide capacity utilization of 80% are nothing to cheer about, and a bleak outlook has weighed on shares for some time now. With restructuring charges due to weigh on third-quarter results, I consider Valero a rather crude choice for now. Smaller refiners Holly
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Fool contributor Christopher Barker reminds Fools to perform DDDD: due diligence on demand destruction. He can be found blogging actively and acting Foolishly in the CAPS community under the user name TMFSinchiruna. He tweets. He owns no shares in the companies mentioned. The Motley Fool has a highly refined disclosure policy.