Refining: Gasoline Shines Bright in Dark Refinery Pool

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Gasoline is the crucial product lifting refiners globally out of the financial darkness they have been stuck in for more than a year since Covid-19 caused an instant collapse in demand. In the US, gasoline gets support from diesel, lifting refiners further into the black. In Europe, gasoline is supported by naphtha, but refiners there still have no financial incentive to run more crude and make no money on base runs. In Asia, gasoline is the only bright spot and refinery profitability there is neutral at best (OMI Feb.16'21). Refiners continue their struggles to make money (OMI Feb.16'21). Rising product prices will polish up margins, allowing them to lock in profits and buy more crude, which in turn would allow Opec-plus to open the taps further. The 2 million barrels per day of crude that Opec-plus decided to push back in three monthly steps through July can be absorbed by the market and even create a tight market (related). But more could be coming to market, especially crude from Iran, Libya and Russia. If demand stumbles on lingering pandemic concerns and lockdowns, these additions can prolong the rebalancing process (related). More supply might erode crude prices (related). But it would help the profitability of refiners in all regions. The Energy Intelligence refinery model shows that US refiners make $7 on the Gulf Coast running an incremental barrel or Mars, up from $6 in March and $4 in February. The February freeze helped drain stocks as power outages prevented 80 million bbl from being produced (OMI Mar.19'21). In Europe, losses on running Brent have narrowed to $2 mid-April from $4 in February and March (OMI Mar.19'21). Asia is running financially neutral on a barrel of Oman in a Singapore refinery for five months straight (related). The product market shows stealthy improvement as refiners keep their runs low and surplus product inventories fill the gap to meet demand. But any premature increase in crude throughput would bump up against these inventories and again trigger lower prices. Gasoline inventories have now drawn so much that refinery margins are in double digits across all regions. Diesel is next and has mostly rebalanced in the Atlantic Basin. It could start picking up profitability when travel and trade pick up on vaccine rollouts. Complex refiners that can produce base feedstock for the petrochemical industry are doing better. Their margins are higher than any time in the past five years. This supports demand for liquefied petroleum gases and naphtha, and prices for lighter crudes like global benchmark Brent, US marker West Texas Intermediate and Mideast marker Murban. Much of the rest of the product slate is showing margins that barely pay for operating costs. Diesel is a case in point. Surplus inventories in Asia are keeping middle distillate margins in Asia, the Mideast and Europe and around $5/bbl. Jet fuel, typically at a premium over diesel and kerosene, makes a little less. Yet all margins are slowly improving, signaling tighter inventories. For now, surplus stocks continue sailing to the Atlantic Basin from Singapore and the Mideast. Once those flows trickle to regular levels and more stays in region, product prices should rise and crude buying pick up. That is expected to occur over the summer (OMI Mar.19'21). Key Crude Oil Incremental Refining Values & Margins Average Monthly Prices Recent Average Weekly Prices Jan Feb Mar Mar 8- Mar 15- Mar 22- Mar 29- Apr 5- ($/bbl) Mar 12 Mar 19 Mar 26 Apr 2 Apr 9 GROSS PRODUCT WORTH (GPW) US GULF COAST Fluid Catalytic Cracking (FCC) Saudi Arabia Lt.-33.3 57.20 64.57 70.43 72.62 71.35 68.10 69.50 68.53 Forties-40.3 59.66 67.34 74.18 76.82 75.09 71.63 73.12 72.38 Bonny Light-34.6 62.11 70.31 76.91 79.80 77.88 74.22 75.55 74.96 Mars-29.6 56.27 63.43 69.05 70.93 70.01 66.81 68.32 67.12 Maya-21.2 49.37 55.48 59.45 60.26 60.36 57.86 59.33 57.55 ROTTERDAM Catalytic Cracking (CC) Saudi Arabia Lt.-33.3 54.12 61.32 64.61 67.19 65.12 61.87 63.42 62.46 Bonny Light-34.6 53.90 60.57 64.22 66.43 64.25 61.82 64.20 63.53 Brent Blend-37.9 52.55 59.04 62.02 64.27 62.19 59.62 61.50 60.84 Urals-31.5 52.32 58.79 61.70 63.96 61.99 59.27 60.92 60.19 SINGAPORE Hydrocracking (HYCRK) Saudi Arabia Lt.-33.3 53.74 60.03 62.88 65.19 64.22 60.56 61.07 60.22 Bonny Light-34.6 57.97 64.06 66.49 68.55 67.61 64.28 64.90 64.39 Oman-33.1 53.67 60.13 62.98 65.16 64.41 60.80 61.28 60.42 Tapis Blend-45.5 56.69 63.15 65.77 67.98 66.96 63.40 64.05 63.48 REFINING MARGINS - GPW VS DELIVERED CRUDE COST US GULF COAST Fluid Catalytic Cracking Saudi Arabia Lt.-33.3 +2.46 +3.27 +5.77 +5.23 +5.74 +5.74 +6.41 +6.88 Forties-40.3 +3.88 +3.58 +7.22 +7.48 +7.46 +7.31 +9.36 +10.08 Bonny Light-34.6 +6.16 +6.81 +10.24 +10.52 +10.42 +10.24 +11.74 +12.46 Mars-29.6 +3.19 +3.97 +6.34 +5.49 +6.35 +6.40 +7.28 +7.52 Maya-21.2 +0.44 +0.14 +2.38 +1.69 +2.18 +2.87 +3.85 +4.02 ROTTERDAM Catalytic Cracking Saudi Arabia Lt.-33.3 -0.90 -0.02 -1.77 -2.15 -2.24 -1.97 +0.36 +0.57 Bonny Light-34.6 -1.91 -2.95 -2.65 -3.09 -3.47 -2.45 +0.31 +0.82 Brent Blend-37.9 -2.98 -4.22 -4.52 -5.03 -5.13 -4.06 -3.35 -2.07 Urals-31.5 -1.45 -1.98 -1.83 -2.23 -2.44 -1.62 +0.35 +1.17 SINGAPORE Hydrocracking Saudi Arabia Lt.-33.3 -1.21 -1.63 -2.34 -2.57 -2.44 -2.53 -2.95 -2.29 Bonny Light-34.6 +0.53 -0.41 -0.82 -1.47 -0.52 +0.62 +1.81 +2.23 Oman-33.1 -0.07 +0.40 -0.34 -0.79 -0.50 -0.34 -0.27 +0.18 Tapis Blend-45.5 -1.42 -1.80 -3.48 -4.16 -4.65 -2.71 -2.64 -2.12 API gravity values used in Energy Intelligence refining model. (r)Revised. Calculations for various

Topic:
Crude Oil
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