Outages will define US refiners Q3 earnings
OREANDA-NEWS. October 27, 2015. Unplanned outages helped determine US refiner fortunes in a volatile third quarter that the industry will begin discussing in earnest during earnings calls this week.
Midcontinent and west coast refiners in particular were hit by unexpected equipment breakdowns amid strong gasoline demand and unwinding crude dynamics through the quarter. Planned midcontinent maintenance sustained premiums into October but US refiners must wade through large volumes of stored refined products through the end of the year.
Tight California supplies remained a boon for west coast refiners in the third quarter. Phillips 66 cut rates at its 120,000 b/d San Francisco refining complex after a June pipeline rupture on a Plains All American Pipeline near Santa Barbara cut crude supplies there for the rest of the year. The outage added to the ongoing shutdown of gasoline production at ExxonMobil's 155,000 b/d refinery in Torrance and maintenance at Tesoro's northern and southern California refineries.
Mexico pulled US gasoline supplies in July and sent California prices rocketing higher to more than \\$1/USG above benchmark Nymex RBOB. Crack spreads for southern California averaged 68pc higher than the five-year average and 74pc higher than last year, based on Argus assessments.
Midcontinent refining crack spreads in the third quarter averaged roughly even with last year. But BP gave the Chicago market a mid-quarter jolt with unplanned crude unit work at its 410,000 b/d refinery in Whiting, Illinois. The refiner met regional supply commitments but could not soothe Chicago gasoline premiums averaging more than seven times the five-year average through the quarter.
US Atlantic coast refiners welcomed back imported crude in the quarter as railed midcontinent supplies lost their competitive edge. Benchmark crack spreads suggest PBF Energy's exclusive ability to run heavy crudes offered less of an advantage than in recent years. PBF stumbled in August with a fluid catalytic cracking (FCC) unit fire at its 190,000 b/d refinery in Delaware City, Delaware, that kept the unit shut until late September. But the work also allowed PBF to move up planned maintenance at the refinery ahead of schedule.
Ample stocks in Q4
Large product supplies and withering inland crude economics are pressing US refiners in the fourth quarter.
Arbitrage for Bakken crude to the west coast fully eroded amid increased deliveries of waterborne imports, including ESPO, to west coast refineries. The long-running discount for west Texas light, sweet crudes vanished into newly operational pipelines moving that production to larger markets on the Texas coast. And Middle East crude supplies have found renewed interest on the US Gulf coast.
Refined products flowed out of that region into the midcontinent in October as maintenance there cut throughputs to their lowest levels since 2008. Planned and unplanned gasoline unit maintenance in the Gulf coast further supported premiums for operating refiners.
Midcontinent refiners plan to wrap up maintenance and restore throughputs in early November. The next round of intense maintenance — this time in the US Gulf coast — will not begin until next year.
That leaves refiners with above-average gasoline and diesel volumes in storage and cooler demand. Warmer than normal weather in the prime markets for heating oil should stifle the need for that winter fuel while gasoline demand has recently trended back toward average, according to the Energy Information Administration.
Refiners will need strong gasoline and diesel exports, already moving in larger volumes than this time last year, to help sop up production through the end of the year.