We are getting into the peak summer driving season and gasoline demand has been hitting all-time highs. You might think that inventories would be drawing down and that the U.S. would need to import more gasoline and gasoline blending components. But not so. U.S. refineries are cranking out the products. Gasoline stocks are up 10% from a year ago—15 million barrels (MMbbl) higher than the top of the five-year range—and last week gasoline inventories made a contra-seasonal move upward, increasing by 1.4 MMbbl. Net exports for the first quarter were up almost five times the same period in 2015. But what does all this mean for refined product markets in general, and gasoline balances in particular? Today, we examine the state of U.S. petroleum product markets.
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.
Most of the gasoline, diesel, heating oil and jet fuel consumed in the U.S. East Coast region is piped in via long-distance pipelines from Gulf Coast refineries, but substantial amounts are moved in by ship—either from the Gulf Coast by Jones Act vessels or from overseas. These shipped-in volumes then need to make their way from port to consumer. Today we continue our examination of how transportation fuels and heating oil are delivered to East Coast users with a look at the ports and connecting pipelines that help move these critically important fuels.
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.
Every day, refineries along the U.S. Gulf Coast produce far more gasoline, diesel and jet fuel than the region could possibly use, and demand for these fuels along the East Coast for transportation and heating is far higher than local refinery production. To help bring the two regions into balance, a complicated network of pipelines, ports, Jones Act vessels and storage facilities has been developed over the past 70 years—and continues to be updated and expanded. Today, we begin a new series on how millions of barrels of these fuels are moved between and within the nation’s largest refining region and the region where more is used than any other part of the U.S.
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.
Mexican production of gasoline, diesel and jet fuel continues to fall and Mexico’s imports of these refined petroleum products from the U.S. are rising fast to keep pace with increasing demand. Longer term upgrade projects to increase Mexican refinery transport fuel are finally underway. But before refinery upgrades make a dent in imports, two ambitious refined-products pipeline/terminals projects will make it easier and more efficient to move large volumes of gasoline, diesel and jet fuel from Texas refineries into Mexico. Today, we update our coverage of fast-moving developments in Mexico-U.S. hydrocarbon trading.
Crude oil prices staged a recovery of sorts yesterday (January 21, 2016) after a crushing first two weeks of the year. But even if this proves to be the turning point, a lot of damage has been done to crude and refined product prices along the way. Jet fuel is a case in point. The U.S. Gulf Coast spot price for kerosene-type jet fuel closed on Wednesday (January 20, 2016) at $0.78/Gal - the lowest it’s been since September 2003, and barring a dramatic recovery in crude oil prices, the refined petroleum product, that is mostly used for aviation and by the military, will remain cheap this year. That’s good news for the airlines and, one would hope, for air travelers too. But it’s bad news for refiners because of narrowing jet margins over crude oil. Today, we examine the global market for jet fuel, and how it’s affecting U.S. refiners.
The Colonial System is the largest refined products pipeline in the U.S. and delivers as much as 2.7 MMb/d from Gulf Coast refineries to destinations up the East Coast as far as New York. The southern section of the pipeline has been running full for over three years – leading Colonial to apportion space to shippers. A desire to gain shipper support to expand the pipeline led Colonial to propose new tariff clauses limiting trading practices that have developed around apportionment such as the sale of shipper history. Earlier this month (December 3, 2015) the Federal Energy Regulatory Commission (FERC) postponed the latest Colonial tariff proposal pending a user conference to resolve differences between the pipeline and shippers on these issues. Today we explain the oddities of line space and shipper history trading.
While recent analysis has raised concerns crude oil pipelines are running half empty the opposite is true for many of the nations’ refined product distribution pipes. Take the huge Colonial Pipeline system that delivers as much as 2.7 MMb/d of refined products from Gulf Coast refineries to destinations up the East Coast as far as New York. The southern stretch of the pipeline from Pasadena near Houston to Greensboro, NC has been running full since 2012 - meaning that shipper volumes are subject to rationing or apportionment. Today we start a two-part series explaining why the Colonial pipeline is so congested and how it operates.
The New York market for residential and commercial heating oil is traditionally tight in the winter months when demand exceeds local production and supplies are supplemented from storage and inflows/imports from outside the region. Coming into winter this year inventory levels were above normal for the time of year and market prices are in contango (a condition where future prices are higher than today) – encouraging further storage. Today we explain how the result is an extension of traditional seasonal storage trade opportunities and a shortage of available inventory capacity.
Only a few short years ago the double punch of fuel efficiency and ethanol mandates had put U.S. gasoline demand on the ropes. But in the past year demand has jumped by 0.5 MMb/d (per data from the Energy Information Administration - EIA). This surge in demand – presumably driven by cheaper prices – has kept refineries running full pelt this summer. Today we discuss the fall and rise of gasoline demand.
The U.S. energy production renaissance isn’t just changing where we get our crude oil and natural gas from, it’s forcing major shifts in the domestic oil refining sector. Gulf Coast, East Coast and Midwest refineries that used to depend heavily on foreign oil are turning to domestic sources, refiners’ ability to process very light U.S. crude is being stretched, and traditional pipeline flow patterns—for crude and refined products alike--are being up-ended. Today, we continue our look at fast-changing petroleum products markets and the infrastructure that supports them.
The boom in U.S. oil and natural gas production has grabbed the headlines the last few years. What shouldn’t be forgotten, though, is that Americans depend on refined petroleum products like gasoline, diesel and jet fuel—not crude—to get from Point A to Point B, and that in some parts of the country, especially the Northeast, fuel oil—not natural gas or electricity—remains the space-heating fuel of choice. Transporting large volumes of petroleum products from refinery to consumer is a monumental and complicated task, a mission accomplished primarily by a still-growing, ever-evolving network of pipelines and storage facilities. Today, we begin a new series on how gasoline, distillate (diesel and heating oil), and jet fuel get to where they’re needed.
Fuel oil demand has been declining for years on dry land – under attack by regulators anxious to reduce sulfur emissions. New international regulations introduced in January of this year are designed to further reduce sulfur emissions from ship engines burning marine fuel oil (“bunkers”) at sea. The new regulations have had an immediate impact on the market for 1% sulfur fuel oil. Most affected ship owners are now using more marine gasoil in coastal zones. Today we examine how the new regulations have impacted fuel oil markets.