By December 12, 2015 Read More →

Refinery runs may boost products oversupply – Platts

Unplanned issues at Gulf Coast refinery could provide some support to spot product prices if supply is curtailed significantly


U.S. Secretary of State John Kerry, left, is greeted by Saudi Foreign Minister Prince Saud al-Faisal upon arrival in Jeddah, Saudi Arabia. (AP Photo/Jacquelyn Martin, Pool, File)

With U.S. refinery runs eyeing the 17-million-barrel-per-day (b/d) threshold this week, any resulting drop in the country’s crude inventories will likely be converted into product stock builds, exacerbating the persistent oversupply that has weighed on oil markets, according to a Platts analysis.

Amid the fallout from last week’s OPEC meeting — at which the producer’s group decided against cutting output to support prices – oil complex fundamentals are teetering on the edge of further declines, the analysis showed.

Prompt-month Intercontinental Exchange (ICE) Brent and New York Mercantile Exchange (NYMEX) crude oil futures — which settled at $40.73 per barrel (/b) and $37.65/b, respectively, Monday — found some support near six-year lows.

Further price declines will likely hinge upon how persistent bearish fundamentals prove to be, especially in terms of product oversupply and steady demand.

Analysts surveyed by Platts Monday estimate crude oil inventories declined 1.2 million barrels for the reporting week ended December 4. Analysts look for a 0.8 percentage point rise in the U.S. refinery utilization rate to more than 95% of capacity for the first time since mid-August.

Product inventories are expected to show an increase for the period, as are gasoline stocks, according to the analysts surveyed by Platts. Gasoline stocks are called 3.2 million barrels higher for the latest reporting week and analysts anticipate a distillate stocks build of 2.5 million barrels.

The U.S. Energy Information Administration (EIA) will release its weekly inventory data on Wednesday.


ExxonMobil’s Beaumont, TX refinery.

Low and ultra-low sulfur diesel (ULSD) inventories on the Atlantic Coast — home to the New York Harbor-delivered NYMEX ULSD futures contract — were pegged at a record 53.71 million barrels for the week ended November 27. If so, that would be a 117% surplus to the five-year average of EIA data.

A steady — and unseasonal — contango in prompt ULSD futures has facilitated storage. The contango was trading around 2.46 cents per gallon (/gal) shortly after the NYMEX settled Monday, a narrowing from the 2.70 cents/gal seen late last week.

However, this time last year ULSD structure was already backwardated. Sharp draws in diesel inventories are unlikely, analysts said, as winter weather in the Northeast thus far has largely remained muted. And while EIA implied demand data for gasoline remains stronger year-on-year, gasoline supply is sufficient.

EIA data pegged U.S. gasoline stocks at 216.87 million barrels for the week ended November 27, almost 3% greater than the five-year average.

Positive refining margins on the Gulf Coast will likely keep refiners there churning out products. Coking margins for imported Mexican Maya averaged nearly $11/b last week. Mars coking margins were strong as well, averaging nearly $8/b, a Platts analysis showed.


Tesoro’s Utah oil refinery

Platts margin data reflects the difference between a crude’s netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.

However, unplanned issues at some Gulf Coast refineries could provide some support to spot product prices if supply is curtailed significantly. For example Citgo delayed the restart until this week on its 50,000 b/d fluid catalytic cracker at its 427,800 b/d Lake Charles, Louisiana, refinery.

Flint Hills Resources reported a small fire at the west plant at its 300,000 b/d Corpus Christi, Texas, refinery early the morning of November 4. Trade sources said the fire impacted the crude unit and that rates were reduced at the plant.

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