ANALYSIS - U.S. oil refiners face major cuts, slow recovery

By Rebekah Kebede and Erwin Seba

NEW YORK/HOUSTON (Reuters) - The recession-battered U.S. oil refining industry may be forced to eliminate more jobs and further curtail capacity in the face of limp demand, tighter U.S. environmental regulations and stricter fuel-efficiency requirements for automobiles.

In the coming months, more refiners may be forced to shut additional units and slash employee numbers due to dismal demand for petroleum fuels.

"You're going to see some whole refineries taken down ... we could see (refinery) runs, as a percent of capacity, drop several percentage points into the low 80s, and correspondingly you're going to see some loss of jobs within the sector, unfortunately," said Jim Ritterbusch, president, Ritterbusch & Associates in Galena, Illinois.

The looming capacity cuts for U.S. refiners could be made permanent as the sector faces more stringent environmental regulations, improved fuel efficiency and foreign competition.

The latest company to fall victim to the recession is Shell, Europe's largest oil company, which announced last week it is mulling staff cuts at its refineries and chemical plants in Texas, Louisiana and Alabama to cut costs.

Among plants under the microscope are those Shell operates jointly with Saudi Aramco and a Deer Park, Texas, refinery operated with Mexican state oil company Pemex.

Shell's announcement came less than a week after the European oil major said it may shut or sell its 130,000-barrel-per-day refinery in Montreal, which it has operated since 1933.

Refining margins are squeezed due to wilting fuel demand as the economic downturn wears on. U.S. refiners have already either cut run rates or shut units that are operating with poor margins. Others have laid off workers.