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Americas: Gasoline Lifts US Oil Demand, Delta Clouds Further Growth

Copyright © 2021 Energy Intelligence Group
US Still No Net Oil Exporter

Flows of refined product into the Americas are poised to decline, although the outlook grows murkier by the day as the Delta variant of Covid-19 plagues the market. During the first half of 2021, the Americas and particularly the US turned into a sponge, soaking up fuel produced elsewhere as its vaccine rollout, stimulus package, and overall economic growth outpaced that of other areas. Meanwhile, weather and logistical hiccups helped inform a surge in imports (OMI May19'21). But the arbitrage window to the US East Coast is now closed, and domestic refiners are seeing green shoots for margins. The key variable remains the virus: For margins to improve further, demand and exports must grow. And as Delta spreads, most forecasters are slashing demand outlooks. Consumption of road fuels in North America is essentially back to pre-pandemic levels. Against a backdrop of lower outright refining capacity, and after a slew of closures and conversions on the one hand and lower utilization on the other, crack spreads are in some areas outperforming 2019 (OMI Jul.19'21). Gasoline cracks against an incremental barrel of Mars crude in a complex Gulf Coast refiner were over $22 in July per Energy Intelligence's model, and swelled another $3 in early August. Diesel, meanwhile, was almost flat with July 2019 but double the crack during the same month last year. Jet fuel remains the laggard. With quarantine measures being re-imposed in some areas, refiners continue to limit yield. But volumes will grow as utilization rises, creating a tricky dynamic for downstream players. Last year, attempts to blend jet feedstock into diesel resulted in bloated inventories of the latter and significant pressure on crack spreads. As income from refining grows, the US downstream is opening the throttle. The refining complex is now operating at some 92% capacity, and much of the incremental yield is destined to be exported. This puts US supplies of gasoline and diesel to Latin America in focus -- during 2020 and the first half of this year, flows of product to Latin America grew from both Europe and Asia. US volumes will likely displace those given logistical advantages. To wit, early August saw product exports from the world’s largest economy hit a record 6.4 million barrels per day. Much of the recent surge comes from liquefied petroleum gasses (LPGs), particularly propane. Ship brokers say that based on current fixtures, product exports from the US should remain in the high 5 million b/d range. Ship tracking data does suggest that outright flows of product into the hemisphere are shrinking, while movements within it are growing. The Americas’ emergence as a largely self-sufficient petroleum bloc may well have resumed. To be sure, there remain pockets of North America that will keep importing fuel at elevated levels compared to pre-pandemic norms. This is in part the result of a dramatic rationalization of refinery capacity that started in the middle of 2019 and focused largely on the US West Coast, where refiners are responding to regulatory pressures and incentives by converting plants for renewable diesel (OMI Nov.13'20). On the Atlantic, the Come-by-Chance refinery is being converted to produce sustainable aviation fuel (SAF). The refinery was idled during the pandemic and so the loss of its volumes had little impact, but as demand perks up the market will be tighter. PRICES Monthly Prices Recent-Week Prices Aug 2- Aug 9- May Jun Jul Aug 6 Aug 13 US GULF COAST (¢/gallon) Prem. Unleaded Gasoline 214.43 224.55 236.00 234.36 234.85 Reg. Unleaded Gasoline 203.51 211.56 220.27 221.26 221.79 Regular RBOB Gasoline 206.21 215.05 223.26 225.51 223.84 Jet Kerosene 174.99 185.42 188.34 182.92 181.87 0.2% Heating/Gasoil 169.31 177.73 179.03 176.42 174.82 <15ppm Diesel 196.93 206.60 206.92 204.33 202.71 Fuel Oil ($/bbl) 0.5% Sulfur (VLSFO) 71.98 77.46 78.06 75.80 74.86 1.0% Sulfur 67.75 71.16 71.53 70.44 69.53 3.0% Sulfur 57.18 61.33 61.54 59.78 59.26 NEW YORK HARBOR (¢/gallon) Prem. Unleaded Gasoline 222.60 229.71 235.50 237.31 242.24 Reg. Unleaded Gasoline 211.35 216.43 225.47 227.96 228.14 Regular RBOB Gasoline 211.73 219.37 225.93 228.94 231.32 Jet Kerosene 182.03 189.54 194.52 189.72 187.92 0.2% Heating/Gasoil 183.02 191.01 194.53 191.83 188.04 <15ppm Diesel † 202.41 212.08 212.66 210.22 207.92 Fuel Oil ($/bbl) 0.5% Sulfur (VLSFO) 75.45 79.57 81.03 79.70 78.14 1.0% Sulfur 67.13 70.99 72.32 69.55 68.23 2.2% Sulfur 62.62 65.14 67.83 66.37 64.79 FUTURES Nymex Heating Oil (¢/gallon) Front-Month Contract 202.09 212.04 212.86 210.54 208.20 4 Weeks Ahead* -0.11 +0.25 +0.16 +0.23 +0.30 8 Weeks Ahead* +0.00 +0.53 +0.12 +0.25 +0.35 12 Weeks Ahead* +0.25 +0.66 -0.09 +0.09 +0.18 Nymex RBOB Gasoline (¢/gallon) Front-Month Contract 212.57 220.56 226.73 226.93 226.86 4 Weeks Ahead* -0.33 +0.01 -2.17 -14.47 -15.04 8 Weeks Ahead* -1.81 -1.72 -15.28 -20.15 -20.88 12 Weeks Ahead* -4.47 -13.57 -19.85 -24.01 -24.87 CBOT Ethanol Futures (¢/gallon) Front-Month Contract 236.00 246.91 233.48 222.00 222.00 *Differential versus current front-month contract. Time periods identified are four,

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