US refiners will clear summer glut: Valero

OREANDA-NEWS. July 27, 2016. US refiners will not bring their summer surplus into the winter season, US independent refiner Valero said today.

Stronger US fuels demand failed to deliver higher profits for refiners this spring, as a combination of imports and domestic production filled stockpiles through the peak US driving months.

But the product glut began last winter, when marginal refining capacity chased a steep gasoline contango instead of cutting throughputs, Valero senior vice president of supply and operations Gary Simmons said. The production went into storage for summer.

Months of low margins weighed down by the winter glut should discourage a repeat this season, he said.

"I don't think there's really a concern about being able to clear out the overhang of summer gasoline and moving it into the market," Simmons said.

Large summer gasoline stockpiles in the US Gulf coast and New York Harbor area also limited calls for octane during the quarter, Simmons said. Octane prices were better on the west coast and in the lower midcontinent, where less fuel storage was available.

Domestic demand was stronger than last year, the company said, despite suspicions that the Energy Information Administration had overestimated gasoline consumption in the quarter. The refiner's wholesale gasoline sales increased by 3pc compared to the same quarter last year, and distillates were higher by 1pc over the same period.

Imports from northwest Europe into the New York Harbor market were more competitive than US shipments because of domestic shipping regulations that increased the price for waterborne movements, the company said. So Valero production instead moved south into Mexico and South America, where more even shipping costs meant the US Gulf coast's access to cheaper natural gas gave refiners an edge. Valero exported a company record 396,000 b/d of gasoline and distillates during the second quarter.

Canadian crude imports had regained their competitiveness this month after wildfires disrupted exports of the heavy crude to the US during the second quarter, Simmons said. Venezuela's struggle to keep its crude upgraders operating had meant an increase in diluted, rather than synthetic, heavy crudes. Fewer refiners can process such a mix, making the grade more competitive for Valero, the company said.

The refiner reported an \\$814mn profit for the quarter, down almost 40pc from the same quarter of 2015.

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