Refining capacity near 3-year high

Sam Fletcher
OGJ Senior Writer

US refineries were operating at 91.5% of capacity in the week ended July 16—“the highest level since August 2007” and up from 90.5% the previous week, said Jacques H. Rousseau, an analyst at RBC Capital Markets under the Royal Bank of Canada.

The input of crude into US refineries increased only 48,000 b/d to 15.5 million b/d that same week (the latest period available at presstime). “But production of light products (gasoline plus distillate plus jet fuel) decreased approximately 0.5%,” said Rousseau. EIA said US gasoline production declined to 9.3 million b/d; distillate fuel production increased to 4.5 million b/d. “Finished product imports increased about 105,000 b/d week to week,” Rousseau said.

“Demand improved slightly week-over-week but remains well below historical summer levels,” he said. In the 4 weeks through July 16, demand for light products was 3% ahead of year-ago levels, compared with an increase of 4.6% the prior week. Rousseau said, “Gasoline consumption increased by about 350,000 b/d week-over-week, but distillate demand declined.”

US gasoline deliveries for this year’s first half averaged 8.88 million b/d, down 0.6 % from the same period a year ago as a result of a sluggish economic recovery, said the American Petroleum Institute in its Monthly Statistical Report for June. Gasoline deliveries of 9.18 million b/d were the lowest for any June since 2004 and 0.5% lower than June 2009 deliveries, it said.

“The listless economic recovery continues to take a bite out of gasoline demand,” observed API Chief Economist John Felmy. “It’s clear from the gasoline deliveries data that consumer confidence in the economy remains shaky. This certainly supports API’s position that increased taxes or other anti-jobs policies by Congress or the administration could increase unemployment and harm our economic recovery.”

Although gasoline demand remained depressed, distillate demand—which tends to track economic output closely—improved in both the first half of the year and for June, API said. First-half low-sulfur distillate deliveries jumped 2.1% from 2009 to average 3.29 million b/d in 2010; June low-sulfur distillate deliveries surged 12.3% from last year to average 3.51 million b/d in June 2010.

US inventories
The Energy Information Administration reported commercial US crude inventories increased 400,000 bbl to 353.5 million bbl in the week ended July 16, counter to Wall Street’s consensus for a drop of 1.2 million bbl. Gasoline stocks climbed 1.1 million bbl to 222.2 million bbl in that same week, exceeding traders’ expectations of a 700,000 bbl increase. Distillate fuel inventories jumped by 3.9 million bbl to 166.6 million bbl, surpassing market forecasts for a 1.5 million bbl build.

Gasoline inventories were 5% ahead of their 5-year average that week while distillate stocks are 25% ahead of their 5-year mean, Rousseau said.

The API earlier reported a 241,000 bbl decline in crude stocks to 353.3 million bbl, with gasoline inventories down 412,000 bbl to 221.4 million bbl, and distillate fuel stocks registering the only increase, up 979,000 bbl to 161.9 million bbl.

Imports of crude into the US increased by 696,000 b/d to 10 million b/d, EIA said. Over the 4 weeks through July 16, US crude imports averaged 9.5 million b/d, up by 203,000 b/d from the comparable 4-week period in 2009.

Rousseau reported, “After a high level of refinery maintenance in the spring, improved margins have begun to attract increased refinery production and additional imports this summer, and coupled with above-average inventory levels, we anticipate declining refining margins in July and August, a negative for refining stocks.”

He said the average US refining margin decreased to $9.70/bbl from $10.65/bbl during the week vs. average margins of $12/bbl in 2008 and $9/bbl in 2009. The price differential between the US benchmark sweet, light West Texas Intermediate and Mexico’s heavy, sour, Maya crude averaged $9/bbl in that week, in-line with the 2010 average through that date, compared with average spreads of $5/bbl in 2009 and $16/bbl in 2008.

The surprising EIA report triggered a drop in crude and petroleum product prices July 21 on the New York market, ending a 2-day rally. “The slide in prices accelerated after Federal Reserve Chairman Ben Bernanke called the economic outlook ‘unusually uncertain.’ The equity markets plunged after Bernanke’s remarks,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. However, he said, “Concerns of supply disruption in the Gulf of Mexico due to the development of a tropical storm in the Caribbean somewhat limited the slide in prices.”

(Online July 26, 2010; author’s e-mail: [email protected])