Exports to clear distillates glut: P66
OREANDA-NEWS. May 04, 2016. US refiners will look for a global industrial recovery to help manage distillate inventories this year, Phillips 66 said today, as the focus of several years of investments becomes an afterthought.
Higher distillate yields were a boon for the US independent refiner in recent years as global demand, heating oil changes and a resurgence of US oil field activity made ultra-low sulfur diesel a high-value commodity. But the product has become a liability this year in the wake of a poor winter demand season and cooling industrial activity. Phillips 66 saw diesel crack spreads at six-year lows during the first quarter, contributing to first quarter refining earnings that plunged to \\$86mn — just 11pc of the \\$764mn in refining income during the same quarter last year.
"It's really turning into more of a byproduct, from a gasoline production standpoint," president Tim Taylor said during a conference call on first quarter earnings. "I think as long as the export markets are open that will continue to clear the US."
China, India, west Africa and Latin America had continued to demand diesel, the company said. Phillips 66 did 126,000 b/d of exports in the first quarter, with distillates making up to 101,000 b/d of that.
US ultra-low sulfur diesel (ULSD) stockpiles last week were almost 26mn bl higher than the same week last year, with most of the increase concentrated in the US Atlantic coast. US Gulf coast inventories were 6.6mn bl higher than the same week last year. Total distillate inventories between September and March, the traditional US demand season, rose by more than 17mn bl — a larger increase than the past five summers, when stockpiles typically build.
Strong US gasoline demand will encourage higher run rates as refiners chase attractive margins for that fuel. Up to 45pc of Phillips 66's capacity produces gasoline; 38pc of Phillips 66's production in 2015, including at its share of a German refinery, was diesel.
Refiners can make some adjustments to operations to curb diesel production, including adjusting crude units and sending feedstocks that might make diesel into gasoline-producing units. But Phillips 66 was limited to make major adjustments for gasoline production in time for the summer season.
A modernization project on a fluid catalytic cracking (FCC) unit at its 250,000 b/d Bayway refinery in Linden, New Jersey, is underway. Phillips 66 also has heavy crude debottlenecking work underway at its 356,000 b/d Wood River joint venture refinery in Roxana, Illinois.
High gasoline demand should also keep naphtha, a gasoline blendstock, inside the US instead of shipped abroad for petrochemical use, Taylor said. Phillips 66, which also operates petrochemical facilities, said naphtha's best value was to blend with octane to produce gasoline.
"With the demand we're seeing in gasoline, that's still the preference we have," Taylor said.
Phillips 66 reported a \\$360mn profit during the quarter, down from \\$834mn in the same quarter last year.
1Q16 | 1Q15 | %± | 4Q15 | %± | |
Atlantic Basin/Europe | 577 | 514 | 12% | 596 | -3% |
US Gulf coast | 679 | 528 | 29% | 688 | -1% |
Midcontinent | 472 | 460 | 3% | 456 | 3% |
Western/Pacific | 323 | 327 | -1% | 312 | 3% |
Atlantic Basin/Europe | \\$5.79 | \\$9.94 | -42% | \\$7.18 | -24% |
US Gulf coast | \\$6.76 | \\$10.59 | -36% | \\$8.59 | -27% |
Midcontinent | \\$7.41 | \\$13.86 | -47% | \\$11.43 | -54% |
Western/Pacific | \\$9.70 | \\$16.54 | -41% | \\$12.51 | -29% |
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