uploads///US Gulf Coast Crack Spread Versus WTI

Will Refineries Suffer from Lower Gasoil Crack Spread?

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Jan. 26 2016, Updated 12:06 p.m. ET

Crack spread

The US Gulf Coast gasoil crack spread fell by more than $5 per barrel compared to the previous month to average $6.4 per barrel in December 2015. This was the lowest level in five years. The fuel oil crack spread also fell by more than $2 per barrel in December 2015. However, the gasoline crack spread rose by more than $2 per barrel to average $20.4 per barrel in December 2015.

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Strong gasoline spread

In December 2015, US gasoline demand came in at 9.1 MMbpd (million barrels per day), which is 80,000 bpd (barrels per day) less than the previous month’s gasoline demand and 130,000 bpd more than the previous year’s demand. This helped to strengthen the gasoline spreads. The gasoline spreads faced some pressure from the supply side, but this pressure was outweighed by tightening sentiment and operation issues in the West region.

Weak distillate spread

In December 2015, the US middle distillate demand was 3.5 MMbpd, which is 330,000 bpd lower than the previous month’s demand and 680,000 bpd lower than the previous year’s demand. The middle distillate demand was under continued pressure from the supply side due to increasing refinery output and lower demand. The distillate demand was lower due to above-normal temperatures. The lower distillate demand put a dent in the margins of refineries such as HollyFrontier (HFC), ExxonMobil (XOM), Chevron (CVX), Western Refining (WNR), Valero Energy (VLO), and Marathon Petroleum (MPC).

The changes in gasoline and distillate demands also impact ETFs such as the iShares U.S. Oil & Gas Exploration & Production ETF (IEO), the Vanguard Energy ETF (VDE), and the Energy Select SPDR Fund (XLE).

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