Gonna Fly Now - Ample Crude Supplies Help Boost Rocky Mountain Refiners' Margins

Refiners in the five Rocky Mountain states that make up the U.S. Energy Information Administration’s Petroleum Administration for Defense District 4 — or PADD 4 — enjoy higher margins than their counterparts in every other part of the country except California. Quarterly crack spreads for domestic crude in PADD 4 averaged $25/bbl between 2014 and 2017, while those for Canadian crude averaged $31/bbl. Today, we explain that these lofty cracks reflect an abundance of crude — both from indigenous Rockies production and Canadian and North Dakota supplies passing through the region — as well as higher-than-average diesel and gasoline prices.

Previously on the Rockies

We first covered Rockies refining back in 2014 with a two-part series based on analysis by our friends at Turner Mason. Those blogs discussed how PADD 4 refiners planned capacity expansions in response to increased regional demand for refined products — especially diesel fuel for operating drilling rigs — and enjoyed robust margins based on advantaged crude supplies (see Rocky Mountain High Part 1 and Part 2). Refiners in PADD 4 traditionally relied on local conventional crude production in Montana, Wyoming, Colorado and Utah. We described the more recent surge in unconventional production in our series on Niobrara Shale (see Bananarama in the Rockies). The big increase in local Rockies production added to higher inflows of crude from North Dakota and Western Canada, both of which have been covered extensively in the blogosphere (see for example our recent Take My Crude Away post on the Bakken and If We Ever Get Out of Here on Canada). We followed the build-out of crude takeaway infrastructure to get light shale crude from the Denver-Julesburg (DJ) Basin play at the southern end of the Niobrara in Colorado — originally via rail before pipelines were constructed (see Part 3 of our  Slow Train Coming series from February 2016) and most recently looking at pipeline overbuild out of the region in July 2017 (see Colorado (G)Oil).

This blog is based on Morningstar Commodities’ latest refinery outlook covering PADD 4. If you would like a copy of the report, please contact commodity-research@morningstar.com.


PADD 4’s 15 refineries producing transport fuels have about 700 Mb/d of capacity among them — an average of just 47 Mb/d per refinery. Yet major oil companies such as ExxonMobil and Chevron as well as top independents Phillips 66 and Andeavor own plants in the region despite their lacking economies of scale usually desired by larger players. Private equity companies have also invested in regional refineries, as evidenced by Par Petroleum’s 2016 purchase of the 18-Mb/d Newcastle refinery in Wyoming.

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