It’s been eight weeks since the steady flow of crude oil and refined product tankers out of the Persian Gulf ended, and the impacts on refineries and product suppliers in key parts of the world are becoming clearer. In today’s RBN blog, we discuss the state of refining in the U.S., Europe and the Asia-Pacific region.
The last few years have been filled with often-spirited debate about the global energy transition and the move away from fossil fuels to fully embrace renewables and alternatives to keep the lights on, fuel vehicles and power the world’s economy. But there are a growing number of signs that a swift shift from petroleum is not realistic, which has implications in many areas, including which refinery expansion projects move forward (and where), when oil demand might peak, and which of the many forecasts for gasoline and distillate production will prove to be the most accurate. In today’s RBN blog, we discuss highlights from the new Future of Fuels report by RBN’s Refined Fuels Analytics (RFA) practice, including RFA’s expectations for how a slower transition might affect producers, refiners and consumers.
Around the world, a lot of smart people in the public and private sectors hold similar views on where we’re all headed, energy-wise. An accelerating shift to renewables and electric vehicles, driven by climate concerns. A not-so-far-away peak in global demand for refined products like gasoline and diesel. There are also what you might call consensus opinions on some energy-industry nuances, like how much global refining capacity will be operational in 2025 and what the spread between light and heavy crude oil will be in the years ahead. In today’s RBN blog, we discuss highlights from the new Future of Fuels report by RBN’s Refined Fuels Analytics (RFA) practice, including RFA’s different take on a few matters large and small — and all of critical concern to producers, refiners and marketers alike.
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.
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.
Over the past few weeks, many U.S. refiners reported even-stronger-than-expected first-quarter results, and it’s likely their good fortune will continue. Why? Despite the skyrocketing price of crude oil — refiners’ primary feedstock — the prices of the gasoline and diesel they produce have risen even more. And it’s that now-yawning gap between crude oil and refined-products prices that’s been driving refining margins — and refiners’ profits — to near-historic levels. Refining margins, like the character and capabilities of thoroughbreds like “Rich Strike” in Saturday’s amazing Kentucky Derby, are unique to each refinery because of their different sizes, equipment and crude slates (among other things), but there’s a tried-and-true way to estimate the refining sector’s general profitability, as we discuss in today’s blog on U.S. refiners’ sky-high crack spreads.
On October 25, a major consolidation of two Canadian oil and gas companies was announced with the planned merger of Cenovus Energy and Husky Energy. The prospective consolidation will offer the opportunity for corporate-level synergies and, over the longer term, for the physical integration of some of the companies’ operations, especially in Alberta’s oil sands. In today’s blog, we discuss some of the more nuanced elements of the consolidation, including potential improvement in crude oil market access and the larger presence of the combined company in PADD 2 refining, a sector that has taken a major hit during the pandemic. This blog also introduces a new weekly report from RBN and Baker & O’Brien: U.S. Refinery Billboard.
On October 25, a major consolidation of two Canadian oil and gas companies was announced with the planned merger of Cenovus Energy and Husky Energy. The prospective consolidation will offer the opportunity for corporate-level synergies and, over the longer term, for the physical integration of some of the companies’ operations, especially in Alberta’s oil sands. In today’s blog, we discuss some of the more nuanced elements of the consolidation, including potential improvement in crude oil market access and the larger presence of the combined company in PADD 2 refining, a sector that has taken a major hit during the pandemic. This blog also introduces a new weekly report from RBN and Baker & O’Brien: U.S. Refinery Billboard.
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.
Record runs allowed U.S. refiners to continue a multiyear streak of strong margins in 2018 despite higher crude prices during the first three quarters and a weaker fourth quarter after product prices tanked along with crude in October. While rising crude prices threatened refinery margins, a high Brent premium over domestic benchmark West Texas Intermediate (WTI) kept feedstock prices for U.S. refiners lower than their international rivals. The availability of discounted Canadian crude also helped produce stellar returns for Midwest, Rockies and Gulf Coast refiners that are configured to process heavy crude. Product prices only weakened in the fourth quarter when gasoline inventories began to rise. Today, we highlight major trends in the U.S. refining sector during 2018 and look forward to 2019.
