01.03.2017, 19:43
US refinery maintenance blunts Opec cuts
OREANDA-NEWS. Heavy winter maintenance is blunting global supply cuts by major crude producers, US independent refining executives say.
Questions surrounding demand in the massive US products market and the ultimate length of the crude supply reduction organized by Opec cloud the domestic refining outlook this year. Sour crude differentials key to US Gulf coast refiners were narrowing even as large crude stockpiles and falling refining rates curbed demand.
"It will probably be April or May before the full impact of any cuts will be seen," Valero vice president of supply Gary Simmons said.
Opec and 11 non-Opec exporters led by Russia agreed in December to reduce exports to a combined 1.8mn b/d. Though US buyers see reductions, refining throughputs falling to their lowest rates in two years have limited their impact.
"If you go through the first quarter heavy turnarounds - particularly for heavier grades here in the US, it may take awhile until that shows up," Phillips 66 president Tim Taylor said. The refiner expects crude throughputs at its facilities to fall close to 80pc of crude capacity. Marathon Petroleum and PBF Energy also plan substantial work, including crude units, at US Gulf coast refineries in the first quarter.
Medium and heavy sour crude differentials have narrowed. The premium for US Gulf coast sweet benchmark Light Louisiana Sweet (LLS) is averaging $4.02/bl in the first quarter so far, lower by 25pc compared with the first quarter of 2016.
PBF Energy, which operates heavy refineries on the US Atlantic, Gulf and west coasts, increased imports of heavy Colombian crudes and other alternatives "just to be able to force some competition in to try to blunt that," chief executive Tom Nimbley said.
Iraqi, Saudi and Venezuelan cargoes continue to arrive, he added.
"The availability of the crude has been there," Nimbley said. "But, certainly, there has been an impact as Opec has started to cut back."
US refiners meanwhile look for their own peers to cut production. Domestic products inventories raced higher in January ahead of maintenance plans and amid signs of meager domestic demand, according to the Energy Information Administration.
Gasoline stockpiles last week moderated their climb, resting at 265mn bl. Most of that volume sits in the US Atlantic coast, where inventories remain 15.5pc higher than the ten-year average for the week after hitting a record volume of more than 76mn bl in mid-February. Ultra-low sulfur diesel (ULSD) inventories also remain higher than year-ago levels, despite emerging industrial demand and a colder winter helping to lift consumption this season.
Refiners in the record gasoline demand year of 2016 produced and stored too much fuel during the winter months. Swollen inventories weighed on margins through the peak summer driving months.
Executives in January and early February insisted the industry is not setting itself up for a repeat.
Valero expects winter gasoline makes up much of the stored inventory, meaning the fuel will not cause headaches for refiners after US markets transition to tighter, summer gasoline specifications. HollyFrontier, Marathon Petroleum and Phillips 66 say the complexity of separating export and domestic demand continues to muddle weekly federal data, and that gasoline consumption is stronger than those reports suggest. Tesoro holds a strong outlook for its primarily west coast operation.
"I do not know how it could get any better," chief executive Greg Goff said.
But PBF Energy's Nimbley is wary. The company expects summer fuel is already filling some tanks in the New York Harbor market. Refiners keeping high utilization rates to store products for a lengthy forward curve should worry that they "are on a fool's errand," Nimbley said. "Shame on us if we fall into the same trap that we did last year."
Questions surrounding demand in the massive US products market and the ultimate length of the crude supply reduction organized by Opec cloud the domestic refining outlook this year. Sour crude differentials key to US Gulf coast refiners were narrowing even as large crude stockpiles and falling refining rates curbed demand.
"It will probably be April or May before the full impact of any cuts will be seen," Valero vice president of supply Gary Simmons said.
Opec and 11 non-Opec exporters led by Russia agreed in December to reduce exports to a combined 1.8mn b/d. Though US buyers see reductions, refining throughputs falling to their lowest rates in two years have limited their impact.
"If you go through the first quarter heavy turnarounds - particularly for heavier grades here in the US, it may take awhile until that shows up," Phillips 66 president Tim Taylor said. The refiner expects crude throughputs at its facilities to fall close to 80pc of crude capacity. Marathon Petroleum and PBF Energy also plan substantial work, including crude units, at US Gulf coast refineries in the first quarter.
Medium and heavy sour crude differentials have narrowed. The premium for US Gulf coast sweet benchmark Light Louisiana Sweet (LLS) is averaging $4.02/bl in the first quarter so far, lower by 25pc compared with the first quarter of 2016.
PBF Energy, which operates heavy refineries on the US Atlantic, Gulf and west coasts, increased imports of heavy Colombian crudes and other alternatives "just to be able to force some competition in to try to blunt that," chief executive Tom Nimbley said.
Iraqi, Saudi and Venezuelan cargoes continue to arrive, he added.
"The availability of the crude has been there," Nimbley said. "But, certainly, there has been an impact as Opec has started to cut back."
US refiners meanwhile look for their own peers to cut production. Domestic products inventories raced higher in January ahead of maintenance plans and amid signs of meager domestic demand, according to the Energy Information Administration.
Gasoline stockpiles last week moderated their climb, resting at 265mn bl. Most of that volume sits in the US Atlantic coast, where inventories remain 15.5pc higher than the ten-year average for the week after hitting a record volume of more than 76mn bl in mid-February. Ultra-low sulfur diesel (ULSD) inventories also remain higher than year-ago levels, despite emerging industrial demand and a colder winter helping to lift consumption this season.
Refiners in the record gasoline demand year of 2016 produced and stored too much fuel during the winter months. Swollen inventories weighed on margins through the peak summer driving months.
Executives in January and early February insisted the industry is not setting itself up for a repeat.
Valero expects winter gasoline makes up much of the stored inventory, meaning the fuel will not cause headaches for refiners after US markets transition to tighter, summer gasoline specifications. HollyFrontier, Marathon Petroleum and Phillips 66 say the complexity of separating export and domestic demand continues to muddle weekly federal data, and that gasoline consumption is stronger than those reports suggest. Tesoro holds a strong outlook for its primarily west coast operation.
"I do not know how it could get any better," chief executive Greg Goff said.
But PBF Energy's Nimbley is wary. The company expects summer fuel is already filling some tanks in the New York Harbor market. Refiners keeping high utilization rates to store products for a lengthy forward curve should worry that they "are on a fool's errand," Nimbley said. "Shame on us if we fall into the same trap that we did last year."
| 4Q16 | 4Q15 | ±% | FY16 | FY15 | ±% | |
| Phillips 66 | 163 | 650 | -75% | 1,555 | 4,227 | -63% |
| Marathon Petroleum | 227 | 187 | 21% | 1,174 | 2,850 | -59% |
| Valero | 367 | 298 | 23% | 2,289 | 3,990 | -43% |
| Tesoro | 78 | 54 | 44% | 734 | 1,544 | -52% |
| PBF | 55 | -120 | -146% | 171 | 146 | 17% |
| Phillips 66* | 1,966 | 2,052 | -4% | 1,988 | 2,075 | -4% |
| Marathon Petroleum | 1,672 | 1,638 | 2% | 1,699 | 1,711 | -1% |
| Valero | 2,113 | 2,125 | -1% | 2,115 | 2,074 | 2% |
| Tesoro | 785 | 752 | 4% | 774 | 731 | 6% |
| PBF† | 776 | 630 | 23% | 728 | 516 | 41% |
| *Phillips 66 throughputs for global system †PBF acquired the 155,000 b/d Torrance refinery in 3Q16 | ||||||
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