The rise in midcontinent North American crude production since 2010 has not benefited all U.S. refiners and consumers equally. In some cases, lower crude acquisition costs have been reflected in prices paid by consumers; in others, refiners have been able to capture higher profit margins. Perhaps not surprisingly, several refiners in the latter situation have been expanding and upgrading capacity. At the opposite end of the reshuffle, refiners have responded by idling capacity, a retrenchment that could ultimately leave local consumers with higher product prices. But this broad-based restructuring of the U.S. refining industry will not be without consequences for the very crude price trends that helped bring it on. Ironically, the remaining refiners in today's higher-cost crude markets could find themselves in an enhanced competitive position further down the road.
Figure 1 shows refiners' monthly crude acquisition costs by region since the beginning of 2010. Starting in October 2010, prices in the Midwest (PADD 2) decoupled from those in the Gulf Coast (PADD 3) on the back of rising production from Canada and North Dakota. While generally trending upward everywhere, crude costs have increasingly given Midwest refiners an edge over those on the Gulf Coast. Crude acquisition costs in the Midwest, where relatively cheap inland crude from the midcontinent and Canada have increasingly replaced more expensive coastal and imported grades piped in from the Gulf of Mexico, swung from a $1 per barrel premium versus those in the Gulf Coast in April 2010 to a $16 per barrel discount in October 2011, the most recent month for which EIA has refiner acquisition cost data, although recent market data suggest a narrowing of differentials between coastal and midcontinent markets. Refiners in the much smaller Rocky Mountains (PADD 4) market, who are almost entirely reliant on "stranded" midcontinent and Canadian crudes, have enjoyed the lowest crude acquisition costs in the United States. By October 2011, their costs had dropped to $6 per barrel below those in the Midwest and as much as $22 per barrel below Gulf Coast refiners. In contrast, East Coast refiners have had to cope with the highest crude refiner acquisition costs in the United States. As recently as March 2010, East Coast costs were below both average U.S. and Midwest costs by about $1 per barrel, although for most of the last few years they exceeded those costs by roughly $1 to $5 per barrel. By October 2011, however, East Coast refiners paid, on average, $10 per barrel more for crude than the average U.S. refiner and $22 per barrel more than their Midwest counterparts. Those premiums had reached even higher levels earlier in 2011.