Midwest WTI cracking margins sank Wednesday to their lowest level since mid-January on a tightened WTI/Brent spread and on refined product price weakness.
The Midwest WTI cracking margin fell $4.71 to $8.54/barrel Wednesday, according to Platts data and Turner, Mason & Co crude yield formulas, the lowest since January 20, when the margin closed at $8.43/b.
The WTI margin sank Wednesday after the WTI/Brent spread tightened $3.73 to $9.29/b on news that the 350,000 b/d Seaway crude pipeline would be reversed by the second quarter of 2012 to ship the glut of Midwest crude to refiners on the US Gulf Coast.
But Midwest margins had been softening gradually prior to Wednesday's announcement. Midwest WTI refining margins have been inflated by this year's deep WTI price discount to Brent crude. The cracking margin peaked this year at $42.30/b on September 1, but has since fallen as WTI's discount to Brent has narrowed, and as Midwest product prices have weakened.
Gasoline crack spreads have been especially hard hit. The Chicago conventional gasoline crack against WTI fell to $2.16/b Wednesday from $5.42/b Tuesday and $20.40/b on November 7.
Margins are still getting some support from Chicago ULSD, lifted primarily by strength in the NYMEX heating oil basis. But that support has waned in recent days, helping to push the crack to WTI to $30.42/b Wednesday from $43.69/b Monday.
Thursday morning, Chicago ULSD was bid at the December NYMEX heating oil contract plus 1 cent/gal, down 20 cents from Tuesday.
Chicago ULSD differentials have weakened as new supply arrived via the Explorer Pipeline, traders said, and on falling demand on the end of the harvest season.
Also, BP this week returned a crude unit and coker unit to service at its 405,000 b/d refinery in Whiting, Indiana, after planned maintenance. A source familiar with refinery operations said a crude and coker unit were back online Wednesday.
In contrast to the Midwest, the decline in Gulf Coast Louisiana Light Sweet cracking margins this week was not nearly as dramatic, although Gulf margins were already depressed by relatively high LLS crude prices.
The LLS cracking margin closed Wednesday at $2.71/b, down from $3.75/b Tuesday and a recent high of $7.09/b on November 7.
But fundamentally, the picture in the Gulf is similar to the Midwest, with sinking gasoline crack spreads balanced out to some degree by higher ULSD prices.
The conventional crack spread against WTI closed at minus $7.43/b Wednesday, up from minus $8.86/b Tuesday, but down from $18.09/b at the end of summer driving season on August 24.
The ULSD crack against LLS closed Wednesday at $15.82/b, down from $18.58/b Tuesday as ULSD differentials on the Gulf have come under pressure from rising output.
Export demand has been supporting ULSD on the Gulf, but traders this week said that demand has been ebbing, both in South America and Europe.
