OREANDA-NEWS. December 29, 2016. Steady crack spreads and export demand sustained US refiners for most of 2016, although run rates are showing signs of moderating.

US refining utilization peaked in early September at 93.7pc of capacity. That is down from 2015, when US refineries hit 96pc utilization in late July and spent most of the summer well above 92pc.

The biggest unknown that could disrupt exports in 2017 is possible new regulations that could emerge from president-elect Donald Trump's administration.

The rise of US exports has been fueled over the last few years by declining US demand amid declining Latin American refinery utilization rates. The US also has benefited from a lower cost advantage because of cheaper crude prices and historically low natural gas prices.

The extra incentive for US refiners and blenders to export came from a US environmental landscape that encouraged the domestic consumption of renewable fuels along with shipping fossil fuels overseas. Exporting finished gasoline and diesel allows US refiners and blenders to avoid paying the Renewable Volume Obligation (RVO). This cost savings also can help domestic refiners undercut foreign producers. This advantage should continue in the coming year. In 2016, the RVO peaked at 11.5?/USG and bottomed out at 6.61?. Comprised of the of the combined cost of US government renewable fuel mandates, when this amount can be avoided by US producers, they will normally pass some or all of the savings onto to foreign buyers.

Some industry players are concerned that Trump will reduce the Environmental Protection Agency's mandate for renewable fuels.

Shakier domestic demand for gasoline in 2016 was a key issue. Despite an uptick in exports during the summer, the US spent most of the year well supplied in gasoline.

While the trendline for gasoline demand across the US steadily rose to almost 9.5mn b/d the appetite for fuel appears to have stabilized at the end of 2016 with hints of a possible decline looming. If the current declining shift in the US auto fleet continues, this could pull domestic demand higher again in 2017. For the first time since 2013, the US fleet's efficiency dipped solidly below 25 mpg in the fall of 2016.

Diesel exports of 1.2mn b/d in through into the fall of 2016 outpaced the year-prior's rate by nearly 40,000 b/d, according to the Energy Information Administration (EIA). Increased demand for US gasoline in Latin American markets boosted those exports even more, by 97,000 b/d from the same period last year to 573,000 b/d, with a vast majority coming out of the Gulf coast as usual.

The 3-2-1 crack spread for the Gulf refiners based on benchmark Light Louisiana Sweet (LLS) crude has averaged \\$14.30/bl into December of 2016 compared with \\$11.22/bl for all of 2015. Nymex futures contracts indicate the crack should run \\$14.50-\\$15.25/bl during the first three months of 2017.

The liberalization of Mexican energy markets could create more demand from newly permitted private importers during 2017, and volumes to Mexico could rise if refinery output at state-owned Pemex continues to flounder.