Spring gasoline record a bust for refiners

OREANDA-NEWS. July 22, 2016. The highest gasoline demand in years was not enough to drive a new US refining golden age this summer.

The industry entered the second quarter hopeful that robust gasoline demand would heat up profits after a warm first quarter proved miserable for heating oil demand and refining margins. Refiners tuned their units to maximum gasoline production and expected exports to clear out stockpiles of distillates relegated to little more than a byproduct of the main US driving fuel.

But demand may not have come through as predicted.

Weekly Energy Information Administration (EIA) gasoline demand estimates, derived from the difference between imports and production and the volumes sent to storage, met the record pace the administration projected heading into the summer season. The weekly estimates matched a record 9.8mn b/d in June.

US gasoline stocks fell in spring and early summer, particularly in the midcontinent, according to the EIA. But inventories remain unseasonably large. High-octane blendstocks — for which surprising demand last summer proved lucrative — were adequately supplied this year. Average US Gulf coast and west coast refining margins fell by as much as a third compared to the same quarter last year, and every region slumped, according to Argus assessments. Regional ultra-low sulfur diesel prices, meanwhile, were stronger than the same quarter last year, neatly flipping conditions the industry expected.

Refiners reporting earnings next week could shed light on a 286,000 b/d gap between higher EIA weekly estimates and more accurate monthly administration estimates for April, the most recent month available. The gap could indicate demand was overstated in the weekly data. Federal statistics on US vehicle miles traveled reported a 700mn mile decrease in April from the previous month, followed by another 500mn mile decrease in May. Both months were still higher than the previous year.

National gasoline stockpiles closed out the second quarter 10pc higher than last year, and total distillate inventories ended the period 9pc higher.

Fuel producers on the west coast, including Tesoro, Valero and Phillips 66, likely benefited during the quarter from a slow restart of the 155,000 b/d refinery in Torrance, California. That facility struggled through the quarter to restore full operations before PBF Energy completed its acquisition of the refinery from ExxonMobil on 1 July.

Midcontinent refiner CVR Energy also struggled to reach customers for part of the quarter, though not because of any operational problems of its own. An ongoing pipeline outage cut 30,000 b/d of the refiner's products access to the Kansas City market beginning in June.

Overall crude throughputs in the midcontinent were lower in the second quarter compared to last year, in part from planned maintenance at BP, ExxonMobil and Phillips 66 facilities. Raging Alberta wildfires interrupted Canadian crude supplies to the region beginning in May, leading especially heavy refiners to scramble for replacements and draw on West Texas Sour production from the US Gulf coast.

Valero will report second quarter earnings on 26 July, followed by Marathon and CVR on 28 July and Alon USA, PBF and Phillips 66 on 29 July.