NEW YORK, NY -- (Marketwire) -- 10/27/11 -- Refining stocks have been crushed in recent weeks on mounting evidence of a collision between a sustained rise in the price of crude and a decline in demand for energy. The present situation leaves refiners paying more for oil, while at the same time they are unable to demand higher prices for their finished product. The Paragon Report examines investing opportunities in the Oil & Gas Refining & Marketing industry and provides equity research on Marathon Petroleum Corporation (NYSE: MPC) and Valero Energy Corporation (NYSE: VLO). Access to the full company reports can be found at:
MasterCard SpendingPulse, which tracks retail gasoline purchases in the U.S., says drivers have cut back on spending at the pump for nearly eight months in a row. Drivers used 8.839 million barrels a day of gasoline in the week ended Oct. 21, according to the most recent SpendingPulse report. Consumption was down 1.5 percent from the prior week. It was the eighth straight week that demand lagged behind 2010 levels. Averaged over four weeks, fuel demand was lower than a year earlier for the 31st consecutive week. Demand in 2011 through Oct. 21 is down 1.2 percent from a year earlier.
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The current pricing spread between the Brent North Sea crude oil and the West Texas Intermediate oil has helped and hurt refiners. Typically, the price difference between the two is a couple of dollars, but in the past six months the gap as widened to as much as $27.90.
The price discrepancy helped bring record profit margins to US refiners who were able to buy oil at prices tied to WTI and sell the processed fuel at prices pegged to the more expensive Brent. Dominick A. Chirichella, analyst at the Energy Management Institute says that the gap's recent convergence will likely harm refiners' fourth-quarter profits. The WTI-Brent spread fell to about $18 a barrel Tuesday.
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