U.S. refiners may cut gasoline output on weak profit

By Rebekah Kebede - Analysis

NEW YORK (Reuters) - U.S. refiners may be forced to deepen gasoline production cuts at a time of year they normally maximize output as bulging stockpiles, lackluster demand and record-high oil prices carve into profit margins.

The outlook for lower fuel production comes even as retail prices climb to new peaks heading into summer vacation season -- a factor that could lead some refiners to remain discreet about cuts to avoid a political backlash, analysts said.

"If everybody cuts too much and then all of a sudden we have some tightness ahead of Memorial Day, then you'll have a lot of questions about why they cut production ahead of the driving season," said Jim Ritterbusch, president of Ritterbusch and Associates.

The head of top U.S. refiner Valero Energy Corp (VLO.N) said last week that poor profit margins had already led the company to curtail production of gasoline slightly, and analysts have said others are likely to do the same.

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Refining margins typically rise in the spring as the summer driving season approaches. But this year refining margins have declined and analysts expect them to remain weak during the usually profitable summer season.

The key reason, analysts said, is that gasoline prices have failed to keep pace with record costs for crude oil.

While crude has become a darling of investors seeking to hedge against a weak U.S. dollar and capture some of the big gains in the commodities markets, gasoline has lagged as economic weakness and high retail prices soften demand for the fuel and contribute to a surge in inventories.