US refiners see profitable 2015, 2016 challenges
OREANDA-NEWS. January 29, 2016. US Refiners lifted by low cost crude and strong demand in 2015 must navigate through their own production concerns this year.
A global oversupply of crude has driven down feedstock costs and restored the economic competitiveness of imported light, sweet crude to US coasts refiners. But falling industrial activity and a mild winter have sharply reduced margins for ultra-low sulfur diesel (ULSD) and heating oil just as newly installed distillates capacity at US refinerieshits its stride. It's still unclear if strong US gasoline demand in 2015 can continue in 2016 or if it will fade with the novelty of sharply lower retail fuel prices.
Valero will be the first independent refiner to report fourth quarter 2015 earnings tomorrow, followed by Phillips 66 on 29 January, Tesoro on 2 February, Marathon Petroleum on 3 February and PBF Energy on 11 February.
Facilities able to process sour crudes benefited in the fourth quarter, especially on the US Gulf coast, where crack spreads improved for Southern Green Canyon and Mars crudes, according to Argus assessments. Gulf coast refiners with access to the midcontinent profited early in the quarter amid extensive Chicago-area outages. Phillips 66 and ExxonMobil may have needed to replace barrels in the region, and Marathon Petroleum had maintenance underway at the time.
The regional gasoline spread between the Gulf coast and lower midcontinent averaged higher than the five-year average by almost 70pc. Chicago averaged 60pc higher than the five year-average, although itwas not as strong as the same period last year. Arbitrage reversed in mid-November after almost eight weeks as refineries, including BP's 410,000 b/d Whiting, Indiana, facility and Phillips 66's 356,000 b/d joint venture Wood River plant in Roxana, Illinois, wrapped up maintenance
West coast refiners continued to profit from ongoing maintenance in late 2015, including shut-in gasoline production at the 155,000 b/d ExxonMobil refinery in Torrance, California.
2016 supply challenges
Seasonal maintenance has begun to cut throughputs in the Gulf this quarter, as refiners there are expected to work on crude units for most of the rest of the quarter. The work may give the industry a chance to whittle down high inventory levels.
Commercial inventories of ULSD have swollen to record volumes in January, led by the Atlantic coast — a major winter demand center for the fuel — where inventories are more than 46pc higher than the same month last year.
Gasoline margins have provided some unseasonable lift, however. Implied gasoline demand so far this year is 7pc higher than normal, according to the Energy Information Administration. Refiners have chased those customers, despite very high inventories, by ratcheting up gasoline production in the midcontinent, Atlantic and Gulf coasts, according to the Energy Information Administration.
But profit margins in January so far still lag the same month last year. Crack spreads slumped for midcontinent and Gulf coast sweet crude refiners, while arbitrage out of the Gulf coast has closed heading to the northeast and reversed into the midcontinent.
A year of attractive west coast refining margins may soon draw to a close as well. ExxonMobil has not commented on restart plans at Torrance, but PBF Energy, which plans to buy the refinery, said late last year that start up could begin in February. The return of that key southern California gasoline supplier would restore more traditional, lower profit margins that keep refiners there grumbling.
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