Petroleum Products

Wednesday, 08/12/2020

For U.S. refineries, the severe demand destruction that occurred this spring led to the worst financial performance in recent history. Not only did refiners produce less diesel, motor gasoline, and jet fuel in the second quarter than any quarter in recent memory, their refining margins were sharply lower than the historical range — a one-two punch that hit their bottom lines hard. The situation has improved somewhat this summer, but it’s still tough out there. So tough, in fact, that it’s reasonable to ask, does the coronavirus and its impacts to the energy sector signal the end of an era for refiners across the U.S.? Today, we review the decline in fuel demand and profitability in the second quarter and discuss the uncertainties refiners face in the second half of 2020 and beyond.

Tuesday, 08/04/2020

The global effort to stop the spread of COVID-19 brought the commercial aviation sector to its knees, and slashed demand for jet fuel to its lowest level in 50 years. That, combined with lower demand for motor gasoline and — to a lesser extent — diesel, forced refineries in the U.S. and elsewhere to substantially reduce their crude oil input and to make major changes in their operations, all with the aim of bringing refined product supply and demand into closer balance. After a horrific spring, U.S. jet fuel production and demand have been rebounding somewhat in recent weeks, but getting back to pre-coronavirus levels may take a long time. Today, we review the flight from hell that the jet fuel market has suffered through so far this year, and how it is affecting refineries.

Tuesday, 07/21/2020

Earlier this month, Shell announced that it was exploring the sale of yet another refinery — this time, it is the company’s Convent facility in Louisiana, which is one of the two refineries in the state that remain with Shell from the unwinding of its former joint venture with Saudi Aramco. Convent, with a capacity of 240 Mb/d, is near the middle of the pack in terms of refinery size and possesses some unique characteristics that could make it an attractive option for the right buyer and market conditions. But Shell’s announcement also raises a question, namely, how does the prospective sale compare with the company’s stated intent to focus on a smaller set of refineries integrated with Shell’s key trading hubs and petrochemicals operations? Today, we review the refinery’s characteristics and how it stacks up against its nearby rivals.

Monday, 07/06/2020

They’re generally small in size, but renewable diesel refineries are popping up in many parts of the U.S., incentivized by government programs aimed at reducing carbon emissions and very gradually weaning Americans — and Canadians — from crude oil-based diesel fuel. Recently, HollyFrontier Corp. announced that it will be converting its decades-old Cheyenne, WY, refinery into a renewable diesel facility. While the news of another entrant into the renewable diesel market is not surprising, the complete shutdown and transformation of an existing refinery for this purpose marks only the second time this has occurred in the U.S. Today, we discuss HollyFrontier’s plans and provide an update on renewable diesel supply and demand dynamics.

Monday, 06/29/2020

U.S. exports of motor gasoline and diesel to Mexico increased steadily from 2013 through 2018 as demand for refined products south of the border increased and throughput at Pemex’s six older, investment-starved refineries declined. U.S.-to-Mexico shipments of gasoline and diesel sagged in 2019, though, as Pemex started to implement a major refinery rebuilding program, and fell further in the spring of 2020 as the social and economic effects of COVID kicked in and Mexican demand for motor fuels plummeted. So what’s ahead for U.S. refined product exports as Mexican demand gradually rebounds later this year and in 2021? As we discuss today, that will largely depend on the Mexican government’s determination to have its debt-laden energy company produce gasoline and diesel at a loss and proceed with expensive refinery projects.

Sunday, 06/07/2020

Mexican demand for motor gasoline and diesel has plummeted this spring due to COVID-19 — so has demand for LPG. So far, Pemex — Mexico’s state-owned energy company and by far the country’s largest supplier of these commodities — has responded by slashing how much gasoline, diesel and LPG it is importing from the U.S. and holding its own production steady, despite the fact that Pemex’s refining margins are now deep in negative territory. What does Pemex’s focus on money-losing refining mean for U.S. exports to Mexico going forward? Today, we begin a short series on the ongoing competition between U.S. refiners and Pemex for market share south of the border.

Thursday, 05/21/2020

COVID-19 has created a number of challenges across the energy value chain, including lower demand for motor gasoline and jet fuel and, subsequently, surplus crude oil. However, even with diminished demand, the facilities that produce and process these fuels have to keep operating at some level, as do petrochemical plants. Workers in the energy industry are considered essential due to the importance of having fuel available to power vehicles and manufacturing facilities, natural gas to enable continued operation of power industries, and logistical infrastructure to ensure that feedstock supply can make it to processing facilities and eventually consumers. Given the need for round-the-clock operations, COVID-related social distancing measures have presented a unique challenge for refinery and petrochemical facilities. To maintain adequate staffing while protecting personnel from the coronavirus, these facilities have been making major adjustments. If, as we all hope, things begin moving back toward “normal” in the coming months and refinery and petchem utilization ramps up, these efforts to keep workers safe will only gain in significance. Today, we discuss staffing issues in these key industry sectors during the pandemic.

Wednesday, 05/06/2020

The COVID-19-induced social isolation and subsequent economic slowdown have caused major drops in U.S. refined products consumption, especially gasoline and jet fuel, which have experienced declines of as much as 44% and 70%, respectively, relative to similar periods in 2019. Diesel fuel consumption has been off as much as 20% on the same basis, and given that COVID is a global crisis, product exports have also fallen. As a result, U.S. refinery utilization has dropped to less than 70% for the last few weeks, the lowest levels since September 2008 during Hurricane Ike. All this presents refiners with two challenges: (1) reduced total demand; and (2) the disproportionate decline in gasoline and jet fuel. Each refinery is configured differently and has a varying degree of flexibility to react to these challenges. Today, we discuss what refiners can do to adjust operations and product yields, and examine the point at which some refineries might be forced to shut down completely.

Wednesday, 04/22/2020

Sharply declining refinery demand for crude oil was a key driver in the historic collapse in near-term futures prices for WTI at Cushing earlier this week. With stay-at-home directives in place in most of the industrialized world, U.S. — and global — demand for motor gasoline and jet fuel has plummeted to levels not seen in decades. These changes in refined-products demand, which may continue for months, already are having significant impacts on U.S. refineries — not just in how much crude oil they need but in operators’ decisions on whether to adjust their crude slates and ramp down or alter their operations. Their urgent challenge is to revise their yields to something close to the appropriate volumes of gasoline, diesel and jet fuel. Today, we begin a blog series on the U.S. refining sector and what refiners can — and can’t — do to adapt to these extraordinary times.

Monday, 03/23/2020

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.

Monday, 02/03/2020

Over the weekend, PBF Energy closed on its acquisition of Shell’s Martinez, CA, refinery, marking the first completed U.S. refinery transaction of 2020. The closure of that deal may seem unremarkable, but it’s rare for more than two to three transactions involving individual refineries to take place in the U.S. in a given year, and there are as many as eight other refineries on the market. These include two each in the Philadelphia area, the Midcontinent and the Rockies, and one each in Washington state and Alaska. Why are so many refineries on the block? Today, we continue our series with a look at the facilities said to be on the market in PADDs 4 and 5.

Thursday, 01/30/2020

It was reported earlier this month that Shell is seeking a buyer for its Washington state refinery, which is located just outside Seattle in Anacortes. That brings to eight the number of U.S. refineries said to be up for sale by a variety of sellers, from integrated major oil companies to independent merchant refiners — plus another refinery that is already under contract. That’s an unusually high number — refineries rarely change hands in the U.S. and when they do, it’s typically for large sums of money to sophisticated and vertically integrated buyers. Today, we discuss the facilities on the block in the East Coast and Mid-Continent regions and the market drivers that could be impacting the decisions of potential buyers and sellers.

Tuesday, 01/14/2020

Texas consumes far more diesel fuel than any other state and almost as much gasoline as car-crazy California, which also has 10 million more people. The long-distance distribution of refined products within the Lone Star State is handled largely by tanker trucks, but in the past couple of years, midstream companies have been adding a lot of new refined products pipeline capacity, not just to help deliver diesel and gasoline within Texas — including the diesel-hungry Permian Basin — but also to move motor fuels to the Mexican border for export. And more diesel and gasoline pipe capacity is on the way. Today, we discuss the new and expanded refined products pipelines criss-crossing Texas.

Wednesday, 12/25/2019

It’s been more than three years since the International Maritime Organization (IMO) fully committed to the January 1, 2020, implementation of IMO 2020, a rule that slashes the allowable sulfur content in bunker fuel used in the open seas around most of the world from 3.5% to only 0.5%. There’s been a lot of angst in the interim, most of it regarding the changes in crude slates, refinery operations and fuel blending needed to meet a flip-of-a-switch spike in global demand for low-sulfur bunker. Also, shippers worried that prices for rule-compliant fuel would go through the roof. Well, it turns out that the transition period in the months leading up to the IMO 2020 era has been largely drama-free. Supplies of very low-sulfur fuel oil (VLSFO) and marine gasoil (MGO) — the bunker most ships will now use — have been building in most places, prices are up but moderating, and while there may be a few hiccups as ships shift to new, cleaner fuels, life will go on. Heck, life will likely be even better for most complex U.S. refineries, which can churn out large volumes of low-sulfur refined products and which will have access to price-discounted high-sulfur “resid” as an intermediate feedstock. Today, we take a big-picture look at the global bunker market as IMO 2020’s implementation day approaches.

Thursday, 12/05/2019

Production of alternative, non-petroleum-based fuel continues to be a hot topic around the globe as government policies have incentivized or even mandated these products with the aim of reducing greenhouse gas emissions. In the U.S., we’ve seen waves of ethanol and biodiesel enter the fuel supply chain, but the latest commodity that has piqued industry interest is renewable diesel, whose chemical characteristics make it a particularly desirable replacement for conventional distillate. Today, we provide an overview of the renewable diesel market, the legislative programs in North America that are incentivizing its production, and the projects currently on the books to produce it.