The last time utilization of U.S. refining capacity fell to these levels was in the 1980s, excluding 2005 and 2008 when activity [image-nocss] cratered due to hurricane-related refinery outages, said the report.
The slump in refinery utilization comes on the heels of falling oil demand in the United States, triggered by the financial crisis. U.S. demand has dropped by around 2 million barrels per day (bpd) since it surged to 21 million bpd in 2007. Cleaner fuel standards and more use of biofuels have also cut into refining profits, the report said.
"There's lots of spare oil capacity from OPEC, lots of spare refining capacity, and lower demand for crude," Tim Evans, energy analyst at Citi Futures Perspective, New York, told the news agency. "The conditions today look a lot like they did in the 1980s, which was a lost decade for oil refiners."
Dismal refinery margins have persisted since 2007 in the United States, the site of nearly a fourth of world refining capacity, eating into refiner profits.
Oil majors Chevron and ConocoPhillips each warned in the past weeks of poor conditions for their refining operations. Last year, several refiners including Valero Energy Corp., Sunoco Inc. and Flying J shut U.S. refineries for economic reasons, while many more idled units to stem losses. When Valero shuttered its Delaware plant, the facility was losing $1 million a day, according to the company.
Experts say more closures are inevitable, the report added.
"There have to be more closures. Either that or we better fairly quickly have a five to six percent global demand growth...[but] the likelihood of such is remote," Mark Gilman, an oil analyst at Benchmark Co., told Reuters, adding that the U.S. refining industry may face a raft of plant closures similar to what it saw in the 1980s.
"That period was a period of rationalization in the industry in a very Darwinian kind of way. Well, we're probably looking at another one, but the bar is higher. We are not talking about closing teapots," he said.
In addition to financial pressures, U.S. refiners are also facing competition against more imports of gasoline and other fuels from new refineries in Asia and the Middle East, such as India's Reliance Industries, said the report.
The last time refinery utilization remained consistently below 80% was in 1985, when EIA figures show they averaged 77.6%.
That was the same year the world's top crude exporter, Saudi Arabia, quickly increased its crude output by 150%, a move that helped to collapse world oil prices and later led U.S. motorists to boost purchases of less fuel-efficient vehicles.
"It would help U.S. refiners to bring back the Hummer," said Evans. "But that's not likely, so they are taking some permanent action."
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