Daily Energy Blog

On the last day of October 2016, the first-ever shipment of Chinese motor gasoline to the U.S. was delivered to Buckeye’s Reading terminal in New York Harbor. The vessel took a circuitous route to New York, taking on cargo in the Hong Kong lightering zone, stopping in South Korea to take on another parcel of clean product, dropping off some benzene in Houston, and then finally heading to New York. That complicated journey suggests that the economics of a regular China-to-East Coast gasoline trade route are not there (at least for now), but the shipment highlights a trend: China is becoming more assertive as an exporter of petroleum products and the implications are global. In an international market defined by oversupply, inroads by China necessarily result in other producers losing market share. In today’s blog, we examine the impact of rising clean petroleum product exports—particularly from China, but also from India—and the corresponding ripple effects both on the world market and on U.S. refiners.

The shale boom breathed new life into East Coast refineries that were under threat of closure by their owners between 2009 and 2012. Now some of those same refineries are under threat again, this time due to poor margins as well as the high cost of compliance with environmental regulations. After enjoying three years of improved margins through access to advantaged domestic crude delivered by rail from North Dakota, five East Coast refineries are now paying international prices for imported crude again in 2016 after differentials between domestic benchmark WTI and international equivalent Brent narrowed to less than $1/bbl in the wake of the crude price crash and an end to the federal ban on most crude exports. Today we discuss PADD 1 refinery prospects.

The increase in waterborne flows to the East Coast in response to the recent Colonial Pipeline outage illustrated the flexibility of supply in the U.S. motor gasoline market. At the same time, the lack of a lasting impact from the loss of 8.3 million barrels of gasoline to a key U.S. demand region highlighted the degree of oversupply in the market. Today we look at how waterborne flows helped to mitigate the effects of the Colonial Pipeline outage, and how flexibility in the East Coast motor gasoline market enabled it to handle unexpected supply constraints with minimal disruption.

West Texas Intermediate (WTI) crude oil at Cushing is languishing back in the low $40s/bbl after a brief period of exuberance in the late spring. The blame for this latest oil-price retreat has shifted from high inventories of crude oil –– both on land and on tankers floating offshore –– to bloated petroleum-product inventories. There is some debate about how concerned the market should be about the increase in product stocks. In the opening episode of this blog series, we take a look at petroleum product cargo flows, and what they are telling us about the health of the market. We start today with middle distillates –– diesel and jet fuel.

A combination of pipelines and ships delivers some 4 MMb/d of transportation and heating fuels to the U.S. East Coast, most of it from Gulf Coast refineries. But there’s always room for improvement in refined products delivery infrastructure, whether it’s pipeline or port capacity expansions, new pipeline spurs, or new storage capability. The aim of these projects is almost always the same: to make distribution more efficient and to hold down the per-barrel cost of delivery. Today, we conclude our series with a look at possible infrastructure improvements and a note about the challenges these projects face.

The East Coast consumes more than 200 million gallons of gasoline, diesel, heating oil and jet fuel a day, but produces only one-fifth of that total, most of it at New Jersey and Pennsylvania refineries. To keep the region’s cars, trucks, trains and airplanes moving (and many of its homes and businesses heated) huge volumes of fuels need to be delivered from elsewhere, mostly via two pipelines from the Gulf Coast and the rest by ship—some from Gulf and other U.S. ports and some from overseas. Today, we continue our examination of the infrastructure that moves gasoline, diesel, heating oil and jet fuel to the nation’s largest fuel-consuming region with a look at four major pipelines.

The U.S. refining industry appears to be transitioning from an era of high margins and record throughputs. Falling crude prices at first increased refining margins – especially as demand for cheap refined products like gasoline expanded. Now product inventories are brimming and margins are squeezed. As we explain today the industry can look forward to an extended period of low crude prices while regulatory requirements and the pace of economic growth largely drive refined product trends.