Highlights include Valero Energy Corp. (VLO) and TOTAL S.A. (TOT).

Utilization of the nation's refining capacity typically drops around this time of the year for seasonal maintenance activities. And this year is no different. According to the Energy Information administration (EIA), refiners operated at 81.8% of their total operable capacity in April's first week, down from the Nov'08 average of 85.8%. Refiners typically do not fully come out of this peak maintenance mode till May, but the process is usually well underway from March onwards.

But the bounce-back from this year's scheduled downtime may be less pronounced than in recent years. Weak demand for gasoline and distillates (includes diesel and heating oil), increased imports and growing ethanol mandates is expected to prompt operators to be less than enthusiastic in reverting back to normal operating levels in the coming weeks. Looking at the nearby chart from the EIA, the industry appears to be on track for significantly lower utilization rates this year.



But as we argued here last week, we expect fairly stable fuel prices this summer despite the lower capacity utilization rates.

The weak macro backdrop appears to have affected how refiners typically handle the seasonal maintenance work. In a normal market, refiners would take down just one unit in a refinery complex (for example, the fluid catalytic cracking unit) but keep the rest of the complex operating. But there is little incentive to continue with that practice this year.

Valero Energy (VLO) shut down its Texas City refinery (capacity 245,000 barrels per day) completely for 40 days in February/March. Its Delaware City refinery (210,000 barrels per day) has been completely down since early March and is not expected to come back online before the end of this month.

Similarly, France's TOTAL (TOT) shut down its Port Arthur refinery (capacity 232,000 barrels per day) in late March without specifying as to when it will come back online.

More significant from a refiner's standpoint is the continued weak demand for refined products. According to the EIA, demand for gasoline and distillate dropped 1.5% and 6.7%, respectively, in the first quarter of 2009. This is clear from the current inventory levels of these two refining products (see charts from the EIA), which account for more than two thirds of the typical refinery's output.




The gasoline picture is even worse, as for as the call on domestic refining capacity is concerned, once we factor in growing European imports and increased ethanol blending mandates. Our bottom-line conclusion is that as long as crude oil prices remain stable, which is our outlook, there is limited room for a spike in gasoline prices this spring and summer.