U.S. Refiners Face Gasoline Slump, May Cut Output: Chart of Day

By Alexander Kwiatkowski

Oct. 6 (Bloomberg) -- U.S. refiners may cut gasoline output as a slump in demand slashes the profit from processing crude oil into the fuel.

The profit margin, or crack spread, for turning crude oil into gasoline fell below zero at the end of last week meaning refiners may lose money by continuing to produce the fuel. When cracks turn negative, companies will consider cutting output in an attempt to reduce their losses and revive prices.

The CHART OF THE DAY plots the gasoline crack spread on the New York Mercantile exchange against implied U.S. demand. Fuel consumption is the lowest since Hurricane Katrina struck in September 2005 as a slowing economy pushes consumers into driving less. A collapse in fuel stockpiles after hurricanes this year shut refineries has failed to revive prices.

``The U.S. refining system cannot run with gasoline prices lower than crude oil,'' said Olivier Jakob, managing director of Petromatrix Gmbh in Zug, Switzerland. ``If the economics were to stay, that will definitely push refineries into cutting runs.''

The November gasoline futures contract on the New York mercantile exchange closed 29 cents below the equivalent crude oil contract on Oct. 3. The so-called crack spread was at a premium of 48 cents at 11:23 a.m. in London today.

The crack is calculated by converting the gasoline contract price to dollars per barrel from dollars per ton and subtracting the crude oil price. Implied demand is calculated by the American Petroleum Institute using the change in gasoline stock levels added to total U.S. imports and production.

To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net