Refinery Throughput

U.S refiners have been processing a lot of crude so far this summer and utilization rates remain high. Crude production has leveled off and is expected by the Energy Information Administration’s (EIA) Short Term Energy Outlook to decline slightly during the second half of 2015. But the early summer market sentiment that drove crude prices up to $60/Bbl on the back of these fundamentals appears to have lost steam. Today we conclude our analysis of short term crude price prospects.

Prices for prompt delivery of West Texas Intermediate (WTI) crude as quoted on the CME/NYMEX futures exchange fell by 60% from their high over $107/Bbl in June 2014 to a low under $44/Bbl on March 17, 2015. After recovering about 37% in April and May WTI prices have remained stuck close to $60/Bbl ever since - closing yesterday (June 23, 2015) at $61.01/Bbl. With market contango narrowing, inventory levels falling, and refinery throughputs rising – why aren’t prices moving higher faster?  Today we review the fundamental data.

The past four years have seen a boom in U.S. refining with strong margins and increased throughput.  The balance of refinery feedstock has changed from a majority of imports to a majority of domestic crude. Market inefficiencies – in the distribution system, crude quality mismatches and export restrictions have kept U.S. crude prices below international levels – bringing refiners high margins and competitive product exports. Today we look at how refiners have benefited from changing U.S. crude supplies.

The Brent premium to West Texas Intermediate (WTI) on Friday (October 18, 2013) was $9.14/Bbl – indicating a new disconnect between US crude prices and international levels. Unlike last time a big Brent premium to WTI opened up in 2010 the price of Light Louisiana Sweet at the Gulf Coast is still tracking with WTI rather than following Brent. This suggests that the US Gulf Coats is long crude at the moment and that imports of Brent priced crude are not required. Today we discuss the current Gulf Coast crude market.