Was the margin madness seen in the last week of March a mirage? Values of highly traded grades of U.S. gasoline grew six-fold from the winter doldrums on March 26, with RBOB briefly trading for more than $14/bbl over Brent crude, while Gulf Coast CBOB fetched more than $13.50/bbl over local sweet crude prices.
Traders are divided on the topic. Those who operate in bulk venues east of the Rockies sense that a cavalcade of refineries returning from maintenance will toss plenty of gasoline into the second-quarter market. West Coast traders tend to be equally sanguine, but some PADD5 refiners are enjoying gasoline cracks that exceed $25/bbl.
Analysis of data from the OPIS Refinery Maintenance Report suggests that markets are following a similar path as in previous second quarters with one
caveat: news flow in the next seven to 45 days will be more about refiners returning to service rather than pursuing spring work.
Our unofficial count suggests that plants representing well over 1.2 million b/d of processing capacity could return to action by April 20. Within that number is a huge chunk of Gulf Coast refining, where gasoline has occasionally traded at a premium to the NYMEX RBOB contract this month. And beyond that date, another 400,000 b/d of processing should return in Robinson, Ill.; and CITGO Corpus Christi, offsetting new turnarounds that will take about 65,000 b/d of crude oil processing offline at BP Whiting, with some 275,000 b/d of ExxonMobil Joliet production idled until mid-May. BP-Husky also has late work that may rob the Ohio market of 110,000 b/d of crude oil demand on May 1.
Quite a bit of refining capacity comes up before April 8. Some of the late-March restarts have yet to be captured in weekly surveys by the American Petroleum Institute and EIA and critical processing is expected to be ramping forward in places like Delaware City, Del.; Linden, N.J. (Bayway); Shell Deer Park; LyondellBasell Houston and Pasadena Refining (recently sold to Chevron).
ExxonMobil may be able to produce significantly more light ends at Baytown if it can successfully get desulfurization back in gear.
The true wild-card region is the West Coast. PADD5 has not added any refining capacity in this century and thin gasoline margins prevail there only when all refineries are operating normally.
Since late February, there has been nothing normal about refining operations on the West Coast. Overlaps make true accounting difficult, but there have been periods where the PADD5 "disabled list" for refiners has put somewhere between
500,000 b/d and 1 million b/d of processing on the shelf.
That may complicate attempts to project when U.S. refinery runs will hit full speed in the upcoming driving season. But recognize that last year saw a driving season peak run rate of 18.243 million b/d, some 1.4 million b/d above where runs were measured in late March.
Most of the peak rates in the last five years have occurred in July or August, but don't be surprised to see an earlier flirtation with what represents maximum utilization in 2019. This was an extensive spring turnaround season but it was an early turnaround season by 21st century standards.
Here's a look at how refiners have performed in the last five years, perhaps hinting at what's in store:
U.S. Gross Refinery Inputs -- Crude Oil and Assorted Feedstocks
Spring Equinox May 1 June 1
2019 16.114
2018 17.129 16.912 17.707
2017 16.520 17.368 17.517
2016 16.422 16.423 16.651
2015 15.837 16.629 16.662
2014 15.324 16.172 16.312
Other items of note as true driving season approaches:
--All of the large Gulf Coast refineries are critical, but perhaps the most crucial refinery for the futures market is the Phillips 66 Bayway plant. The refinery is supposed to be operating normally this month, but reports persist about balky equipment related to the very large fluid catalytic cracker (FCC)
--Most refiners regard refinery work as a trade secret. Valero has said little about upcoming maintenance at its Memphis refinery, but OPIS sources believe that some significant work will limit output this month and next.
--European refiners are on a later schedule than the U.S., which is to say that their maintenance is largely in April and May. That may limit the cargo arrivals on the East Coast.
--At one point this winter, there were rumors that Philadelphia Energy Solutions might not be able to meet payroll demands in April. A more prosperous March has put an end to those reports, suggesting that the 330,000-b/d plant will contribute plenty of gasoline and diesel.
--OPIS staff report
Copyright, Oil Price Information Service
