London, 18 February 2011

It was the best of times, it was the worst of times ... Nothing illustrates the shifting direction of oil flows as well as the different refinery operating rates in the U.S. Midwest and Gulf Coast revealed in the Energy Information Administration ( EIA)'s weekly petroleum surveys.

Midwest ( PADD II) refiners consumed 3.427 million barrels per day (bpd) of crude in the week ended Feb. 11, down slightly from the 3.446 million barrels the previous week but still higher than the past seasonal record set in 1998 (Chart 1).

In contrast, Gulf Coast (PADD III) refiners cut throughput for the sixth week running, processing 6.642 million bpd of crude, among the slowest refining rates in recent years (Chart 2).

Substantial discounts for landlocked crudes such as WTI compared with coastal crudes such as Mars and Louisiana Light Sweet, and the huge resulting refining margins, give mid-continent refiners every incentive to maximise throughput.

Chart 1: http://graphics.thomsonreuters.com/ce/PADD2-THRUPUT.pdf

Chart 2: http://graphics.thomsonreuters.com/ce/PADD3-THRUPUT.pdf

Chart 3: http://graphics.thomsonreuters.com/ce/PADD2-STOCKS.pdf

PADD II refineries normally cut consumption around 250-500,000 bpd between late February and late March as part of the regular maintenance season, resulting in a build-up of crude stocks across the region (Chart 3).

But with stocks around the NYMEX delivery point already above 37.5 million barrels and near record levels, and the rest of the region flooded with excess crude, the market has to give PADD II refiners an incentive to postpone or scale back shutdowns to avert a storage crisis.

As a result, local crude for March and April is trading at heavy discounts to the forward months . Benchmark 3-2-1 crude-gasoline-distillate refining margins are around $25 per barrel between March and May and rising steeply.

Ends --

By John Kemp, Reuters market analyst - for Commodities Now.

The views expressed are his own