Not surprisingly, refinery utilization rates and crude oil runs have responded to crude acquisition costs. During the fourth quarter of 2011 (based on weekly data), gross inputs into U.S. refineries (which include crude oil, unfinished oils, and natural gas plant liquids put into atmospheric crude oil distillation units) ran about 1% above their seasonal average of the previous five years. But this aggregate figure hides wide regional disparities: Midwest refineries averaged gross inputs that were 8% above their five-year average, while those on the East Coast were running 22% lower than average. After a heavy September refinery maintenance schedule, gross inputs to refineries in the Rocky Mountains were 4% above average during the last three months of the year.
These diverging trends have gained momentum in the first weeks of 2012. As of January 13, Rocky Mountains refinery gross inputs were running 9% higher than average, while East Coast refinery gross inputs contracted further, to 41% below average. Weak product demand on the East Coast has helped rein in regional crude runs; the East Coast led the nation in gasoline consumption declines in 2011. On January 18, Hess announced the closure of its HOVENSA joint venture refinery in the U.S. Virgin Islands, a major source of product supply to the East Coast. That planned closure follows on the heels of the idling of two refineries in the Delaware Valley by Sunoco and ConocoPhillips and announced plans by Sunoco to idle another refinery in the region by mid-2012. The complete idling of the three refineries would collectively cut as much as 50% of current East Coast refining capacity.
To some extent, retail prices of refined products mirror those shifts in feedstock costs and refinery operations. For the last 20 years, East Coast motorists have been paying increasingly more for gasoline than those on the Gulf Coast, a trend to which the recent refinery closures and high East Coast crude costs appear to have lent considerable momentum. Since early October 2011, the East Coast gasoline price premium relative to the Gulf Coast has risen sharply, reaching near-record levels, and since late November 2011 has remained consistently above 22 cents per gallon (over $9 per barrel), a level which earlier had been reached only fleetingly. In contrast, prices in the Rocky Mountains have plummeted since early September, dropping to the lowest level of any region in the nation. Midwest prices fall somewhere between East Coast and Rocky Mountain regional prices. Historically, the spread between Midwest and East Coast prices has been very volatile, although more recently East Coast prices have moved to a widening premium versus the Midwest. Unlike Rocky Mountains motorists, those in the Midwest have not been able to parlay regional refiners' crude cost advantage into relatively lower retail product prices - most likely because the Midwest, for all its recent increases in refinery runs, remains far less self-sufficient than the Rockies in product supply. As Midwest markets continue to pull gasoline from the Gulf Coast, it is the higher cost of bringing in those Gulf Coast barrels, rather than Midwestern production costs, that tends to set Midwest product prices.