Refinery activity surged last week, with total net inputs climbing 230 Mb/d to 17.225 MMb/d, the highest level since late 2019. Gross inputs rose by 170 Mb/d, pushing utilization up nearly a full point to 94.3%, with PADDs 2 and 5 leading the gains. On the demand side, motor gasoline bounced back strongly, rising 900 Mb/d after the previous week’s steep drop, though demand swings of this magnitude for three straight weeks point to an unusually volatile market. Despite the rebound, the sharp increase in refinery throughput added 1.5 MMbbl to gasoline inventories. Meanwhile, crude prices moved higher, but product gains didn’t keep pace, pressuring refining margins. The 3-2-1 crack spread dropped 6.8% to $20.05/bbl as falling gasoline cracks outweighed a small uptick in diesel.
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Where Did Our Distillate Go? Stocks Low as Heating Oil Season Arrives
U.S. inventories of distillate — especially ultra-low-sulfur diesel (ULSD) and heating oil — are at their lowest pre-winter level in three years after falling during the summer months for the first time since inventory records started being measured in 1982. Rising diesel exports are one culprit; another is the shutdown of a number of Gulf Coast refineries during and immediately after Hurricane Harvey. The good news is that distillate prices have been increasing, as have the margins for refining crude oil into distillate — both encouraging refineries to ramp up their diesel/heating oil production. Today, we look at recent developments in the distillate market and what they may mean for diesel and heating oil prices this winter.
Strange Brew - COVID-19 and the Crude Oil Price Crash Puts the Screws on U.S. Refiners
The collapse in crude oil prices and COVID-19’s very negative effects on global gasoline, jet fuel and diesel demand are putting an unprecedented squeeze on U.S. refiners. Even before the initial coronavirus outbreak in Wuhan, China, started to grab headlines around New Year’s Day, refineries had already been incentivized to shift their refined products output toward diesel, which can be used to help make IMO 2020-compliant low-sulfur bunker. Now, with the COVID-19 pandemic spreading to Europe and North America and stifling consumer transportation fuel demand, the price signals are even stronger, pushing refineries to do everything they can to minimize their gasoline and jet fuel production and enter what you might call “max diesel mode.” Today, we discuss how there are challenges and limits to what they can do, and a number of refineries may need to shut down due to lower demand, at least temporarily.
Cracking Up, Part 2 - Will High Crack Spreads Be Enough to Balance Refined Products Markets?
U.S. diesel inventories are at their lowest level for May since 2000 and East Coast stocks recently hit their lowest mark for any week or month since the EIA started tracking them in 1990. Crack spreads for diesel — and, more recently, for gasoline — have gone parabolic, giving refiners the strongest financial signal ever to produce more diesel and gasoline as we enter the summer travel season. More jet fuel too. The problem is, U.S. refineries already are running flat-out. And Europe? It’s facing big cuts in crude oil and refined-products imports from Russia as well as much higher prices for — and possible shortages of — oil and natural gas, the latter being the primary fuel for operating refinery hydrocrackers, which upgrade low-quality heavy gas-oils into high-quality diesel, gasoline and jet. It’s a mess, and not easily fixable, as we discuss in today’s RBN blog.
