While the well-publicized growth in U.S. tight oil production has the potential to significantly alter long-standing relationships in international crude oil markets, domestic price divergences resulting from this growth have already had a major impact on the U.S. refining sector. Monthly data for May from the U.S. Energy Information Administration (EIA) confirm two trends: U.S. refineries continue to run at high levels, and disparities in the regional economics of the U.S. refining market persist. U.S. refineries have run 330,000 barrels per day (bbl/d) (2.3 percent) more crude oil year-to-date through May in 2012 compared to 2011 (Figure 1). This increase in crude runs has been concentrated in the Midwest, Gulf Coast, and Rocky Mountain regions, areas which have access to discounted land-locked crude oils or which have refineries with substantial upgrading capacity.
In 2012, the U.S. refining sector has generally been refining more barrels of crude oil than at any point since the large drop in petroleum prices in 2008. In May, U.S. refineries as a whole ran 15.2 million bbl/d of crude oil, a 3-percent increase compared to a year earlier. With the addition of the May data, 2012 year-to-date crude runs at U.S. refineries have averaged about 14.7 million bbl/d, the highest runs during the first five months of the year since 2008, and 220,000 bbl/d (1.5 percent) higher than the five-year average. Looking only at the national level of U.S. refinery runs, however, reveals just part of the picture. There are significant regional disparities in the underlying economics leading refinery runs to vary greatly among regions.
Refineries in the Midwest and Rocky Mountains are running at record-high levels to take advantage of lower-cost feedstocks available as a result of surging tight-oil production in those areas, along with some capacity expansions which have allowed for the processing of more heavy, sour Canadian crude. In 2012, the refiner acquisition cost of crude oil (RAC) for the Midwest and the Rocky Mountains has averaged $11 per barrel and $15 per barrel, respectively, below the U.S. average RAC. This price advantage has resulted in increased margins for refiners with access to the discounted crude oil, encouraging persistently high crude oil runs and refinery capacity utilization. Midwest refineries have run an average of just under 3.5 million bbl/d of crude oil through May in 2012, a 5.7-percent increase over 2011 and an 8.6-percent increase over the average from 2007 through 2011. In April, Midwest runs were the highest of any month since July 2000. Runs have been particularly high in Kansas and Oklahoma, where refineries are closely linked to the Cushing trading hub for West Texas Intermediate crude oil, which has been discounted for much of the past two years compared to global benchmarks such as Brent. Although they have a much smaller total capacity, refineries in the Rocky Mountains have run 559,000 bbl/d of crude oil in 2012, a 4.7-percent increase from 2011.