Refined Fuels

Sunday, 08/14/2022

The cost of gasoline has garnered a lot of headlines since the start of 2022, with the blame for elevated prices falling on seemingly everything and everyone, from the Biden administration’s policies on oil exploration to Russia’s invasion of Ukraine, as well as decisions by major U.S. producers and OPEC not to swiftly boost oil production. Another can't-be-ignored culprit is the loss of significant U.S. refining capacity over the last few years, which has limited the ability of refiners to respond to the strong, post-COVID demand recovery by ramping up production. By and large, the refineries still operating have been running flat out. In today’s RBN blog, we look at the state of global refining, where new capacity is likely to be built, and the headwinds to future investment.

Thursday, 07/28/2022

Refiners and the U.S. Environmental Protection Agency (EPA) have locked horns in a dispute over Renewable Identification Numbers (RINs). Now in its 10th year, the dispute stems from contradictory premises about how RINs affect the profits of the refiners and blenders who produce the ground transportation fuels sold in the U.S. To form an opinion of what ought to happen next, you need to understand the fundamentals of how RINs work in light of the RIN being a tax and a subsidy that forces renewables into fuels. In today’s RBN blog, we focus on how RINs force renewables into fuels and address the related question: Do RINs increase the price consumers pay for gasoline?

Tuesday, 07/19/2022

Refining margins today — whether in the U.S. Gulf Coast (USGC), Rotterdam or Singapore — are at record highs. Given current high crude oil prices, gasoline and diesel prices at the pump everywhere are also at unprecedented levels, making refinery profits a major topic of conversation — and not just for politicians. While some of the explanations of refining margins are just political talking points, several others are well-established and accepted, and still others consider factors that are less frequently cited, even by those familiar with energy markets. One such factor is the price of natural gas and how it’s impacting refinery operations and competitiveness around the world. Today’s RBN blog discusses the crucial role natural gas prices play in refinery operating expenses and refining margins, and examines how favorable natural gas prices in the U.S. are providing a substantial competitive advantage for domestic refiners.

Monday, 07/18/2022

As the world economy tries to dust itself off after COVID, increased demand for transportation fuels coupled with tight supplies has become a pain. The shortage escalated to crisis levels this spring and summer when, in response to Russia’s invasion of Ukraine, sanctions eliminated Russian exports of crude oil and intermediate feedstocks to the U.S. and severely reduced flows to Europe. While Russia has been able to find some alternate markets, its overall product exports are down significantly. Adding to these product-supply reductions are policy decisions by Putin’s allies in China to reduce their product exports to a trickle. Chinese exports had been an important part of regional supply in recent years, but authorities there have decided to decrease the number and size of export quotas issued, leaving many refineries in China operating at rates well below their capabilities. In today’s RBN blog, we take a closer look at how developments in Russia and China have played a major role in the current global shortage of refined products. 

Wednesday, 07/13/2022

We often tend to focus on the U.S. refining picture, but, just like crude oil, refined products trade globally, and international closures ultimately have the same effect as domestic ones on the worldwide products market. Recent international closures have been distributed throughout the world — concentrated in developed countries, including several in Europe, as well as Japan, Singapore, Australia and New Zealand, but also in some developing economies like South Africa and Sri Lanka. Most of these capacity reductions were driven by the same forces as in the U.S., namely, poor economics as a result of the pandemic-lockdown-driven demand plunge in 2020 and 2021, as well as expectations that margins would take a long time to recover post-COVID. Of course, worries that the energy transition and policies to that end would suppress demand in the long-term also played a key role, as did some fundamental competitiveness issues at individual facilities. In today’s RBN blog, we take a closer look at the more than 2 MMb/d of international capacity closures since 2019.

Monday, 07/11/2022

Gasoline and diesel prices are skyrocketing. Refineries are running near maximum capacity. The Biden administration is asking refiners to bring more capacity online to relieve refining constraints. And as the economy recovers from the COVID meltdown, it looks set to get worse before it gets better. So the timing could not be better to launch our new team focused on refineries and refined products: RBN Refined Fuel Analytics. We readily admit that this is an advertorial but stick with us, it will be worth it. We’re building out a whole new approach to the understanding of refined fuel markets –– both traditional hydrocarbons and renewable fuels –– from feedstocks through refining processes to final products. In today’s RBN blog, we’ll introduce the who, what and how of this important initiative.

Tuesday, 07/05/2022

Way back in 2019, just about everyone in the refining world was talking about IMO 2020, the International Maritime Organization’s soon-to-be-implemented rule requiring much lower sulfur emissions from most ocean-going ships. A lot of forecasters were anticipating that major market dislocations would result — things like $50/bbl-plus diesel crack spreads, oversupply of high-sulfur fuel oil, and ultra-wide differentials between light and heavy crude oils. They did, but only briefly, in the last few months of 2019. The implementation of IMO 2020 turned out to be pretty much a non-event, and for much of 2020 and 2021, people didn’t think much about the new bunker fuel rule. Lately, things have been changing, as we discuss in today’s RBN blog.

Monday, 06/27/2022

Refinery closures. Shifting demand for gasoline, diesel and jet fuel. Yawning price differentials for refined products in neighboring regions. These and other factors have spurred an ongoing reworking of the extensive U.S. products pipeline network, which transports the fuels needed to power cars, SUVs, trucks, trains and airplanes — not to mention pumps in the oil patch, tractors and lawnmowers. New products pipelines are being built and existing pipelines are being repurposed, expanded or made bidirectional, typically to take advantage of opportunities that midstreamers, refiners and marketers see opening up. In today’s RBN blog, we begin a review of major pipelines that batch gasoline, diesel and jet fuel and look at the subtle and not-so-subtle changes being made to the U.S. refined products distribution network.

Sunday, 06/26/2022

As the price of gasoline continues its seemingly never-ending upward path in the U.S. (not withstanding a bit of a pause in the past week), the cause (or blame, if you prefer) continues to shift. Of course, the Biden administration has heavily promoted the phrase “Putin’s price hike,” and the Russian president can certainly claim some of the blame. His invasion of Ukraine and the subsequent sanctions on the world’s second-largest exporter of refined products (after the U.S.) have led to the loss of several hundred thousand barrels per day of product supply. However, prices for refined products were already rising before his late February invasion due to a variety of other factors, both on the supply and demand sides of the equation. Perhaps the most important factor has been the loss of significant U.S. refining capacity over the last few years, which is limiting the ability of refiners to respond to the strong demand recovery and loss of supply. In its highly publicized June 15 letter to U.S. oil executives, the administration acknowledged this as it demanded refiners reactivate lost capacity and increase production. In today’s RBN blog, we summarize the shutdowns which have taken place in the U.S. and discuss the reasons behind those closures.

Wednesday, 06/22/2022

In film and television, the “boxed crook” trope is where a condemned person is sought as a last-ditch effort to pull off some impossible mission or overcome a formidable opponent. In return, the convict is typically offered amnesty or other consideration by the operatives in charge. Millennials will probably think of the recent Suicide Squad movies. For Generation X, The Rock starring Sean Connery was a great example. And for the boomers, it was The Dirty Dozen. Our current situation in the U.S. energy sector may not be quite as thrilling as those movies but the same plot elements exist. In today’s RBN blog, we discuss the predicament faced by industry and political leaders and begin to sort out the various proposals to put a lid on prices and restore energy security.

Monday, 06/20/2022

In the next few days, U.S. Energy Secretary Jennifer Granholm will hold an emergency meeting with leading energy executives to discuss steps E&Ps and refiners could take to increase crude oil production, refinery capacity and the production of gasoline, diesel and jet fuel, all with the aim of reducing prices. The prelude to the get-together was less than ideal, though. In a June 14 letter to the top brass of four integrated oil and gas giants and three large refiners, President Biden criticized them for “historically high refinery profit margins” and for shutting down refining capacity before and then during the pandemic. In addition to rejoinders from the companies, the American Petroleum Institute (API) and the American Fuel & Petrochemical Manufacturers (AFPM) defended their actions, discussed the complexity of refined products markets, and asserted that the Biden administration’s statements and policies have actually discouraged investment in refining and oil and gas production. Is there a middle ground here? In today’s RBN blog, we look at the high-level correspondence and discuss how at least some compromises might be possible.

Thursday, 06/16/2022

For several years now, no single topic has caused more angst in refiners’ quarterly earnings calls than the seemingly arcane topic of renewable identification numbers, or RINs, which can have a big impact on a refiner’s financial performance. RINs are a feature of the federal Renewable Fuel Standard (RFS), which requires renewable fuels like ethanol and bio-based diesel to be blended into fuels sold in the U.S. And depending on your point of view — farmer, refiner, blender, consumer, politician — you may have a very different perspective regarding RINs’ role as a tax and a subsidy. In today’s RBN blog, we dig into the fundamental aspects of RINs at the root of this long-running controversy and examine the role of RINs as a mechanism for forcing renewables into fuels.

Tuesday, 06/07/2022

Last month, in the U.S. Environmental Protection Agency’s (EPA) latest ruling in a long-running dispute with refiners over the Renewable Fuel Standard (RFS), EPA denied 36 petitions from refiners seeking exemptions to their obligation to blend renewables like ethanol into gasoline for the 2018 compliance year. At the core of this dispute are two contradictory premises about Renewable Identification Numbers, or RINs. One premise says the RINs system adds cost that hurts refiners’ profitability, while the other says refiners’ profitability is not affected. Can two seemingly contradictory premises be true? In today’s RBN blog, we begin an examination of the issues surrounding RINs and the degree to which the cost affects refiners’ and blenders’ bottom lines.

Monday, 05/23/2022

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.

Monday, 05/16/2022

It took a while, but domestic air travel is finally returning to pre-pandemic levels and international travel to and from the U.S. is showing signs of recovering too. As a result, U.S. production of jet fuel has been rising steadily in recent months and, since most jet fuel needs to be transported long distances from refineries to airports, so have flows of jet fuel on U.S. refined products pipelines. All of that is good news, but as pipeline flows rise, so may the stresses on some elements of the U.S. refined products/jet fuel distribution network, including pipelines, storage facilities and “last mile” jet fuel delivery trucks. In today’s RBN blog, we continue our look at jet fuel, this time with a look at the extensive web of U.S. refined products pipelines.