|SOne of the most interesting outcomes of the strong
distillate market in 2008 is what it told us about U.S. refiners, and what
they might be able to do in the future.
|SU.S. refineries have in the past been run to produce
gasoline, based on the large U.S. demand for gasoline compared to
distillates. With the strong
distillate incentives in 2008, we began to see how much more distillate U.S.
refiners could make basically through operating changes.
|SDistillate yields started out 2008 at typical levels, but
during summer 2008, gasoline margins were sometimes negative, and distillate
margins were very high. Once refiners
became convinced that this high-margin distillate picture was going to last
some time, refiners began focusing on shifting to higher distillate yields at
the expense of gasoline, which had surplus supply (as evidenced by some very
high gasoline inventories).
|SIn the summer months of 2008, the average distillate yield
increase compared to 2007 was about 3 percentage points, and even from
October through December, when distillate yield would be at its normal
seasonal maximum, the increase was still over 2 percentage points higher than
the prior year.
|SAs 2009 began, distillate yield remained high, but
distillate demand was plummeting, and the export market was also loosing its
luster. It took until June for
refiners to reverse this shift to higher distillate yields, and the higher
U.S. distillate production has contributed to the high distillate inventories
in this country as well as in Europe.