MOSCOW (MRC) -- US refiners are stuck between meeting rising gasoline demand and the glut of supply in the lackluster diesel and jet fuel markets, reported Reuters.
Refiners cannot produce gasoline without making other products like diesel, commonly known as distillates. The coronavirus pandemic slashed demand by one-third worldwide, and so far the gasoline use has rebounded faster than that of distillates. Refiners still have big stockpiles of diesel and other fuels, and do not want to make more of those products due to poor margins.
Refiners have been running at around 80% utilization since the end of July, up from the spring, when the pandemic broke out, but still below usual levels. With summer driving season coming to a close, they are reluctant to boost output for the winter season, when gasoline demand declines.
“Once Labor Day wraps up, and especially this year where few parents are dropping off their kids (at school), gasoline and distillate demand will likely see more erosion than usual,” said Patrick De Haan with GasBuddy.
Refiners cannot bet on profit margins improving soon. The refining crack spread, a proxy for margins, fell last week to USD7.93, lowest since April 2020, because demand for product is not strong enough to draw down inventories, nor keep up with rising crude prices.
Several refiners shut during Hurricane Laura, reducing overall refining capacity use to less than 77%, but refiners have indicated that they will not ramp up much more due to concern of oversupply of distillates.
“Refineries are in no rush to reopen, because they’re making no money,” said Bob Yawger, director of energy futures at Mizuho.
One refining executive who requested to remain anonymous said they are constrained by distillate inventories and would continue to run plants between 80% to 82%.
US demand for gasoline has recovered by about 70% since early April, US Energy Information Administration data shows. Gasoline stockpiles have dropped over the last two months during the summer driving season.
Consumption for distillate fuel, which includes diesel widely used in trucks for construction and transporting goods, increased by only around 40% since April.
Distillate inventories are higher than usual, currently at 177.5 million barrels, or about 20% above the five-year average for this time of year, according to EIA data.
Jet fuel demand, meanwhile, is expected to drop by 40% this year to 3.1 million barrels per day, the International Energy Agency said earlier this month.
“I’m not convinced that we could get to full utilization in this industry if jet demand is where it is today,” PBF Energy Chief Executive Thomas Nimbley said on an earnings call in late July.
Refiners hope export demand will offset the weak domestic consumption, but there, too, distillates are lagging gasoline.
Finished gasoline exports in August were down just 4% from a year ago, compared to a 35% drop in middle distillate exports, said Matt Smith, director of commodity research at ClipperData.
We remind, as MRC wrote before, most chemical production facilities in the region between Beaumont-Port Arthur, Texas, and Lake Charles, Louisiana, have shut down in preparation for Hurricane Laura, which was forecast to make landfall near the Texas-Louisiana border Wednesday night or early Thursday. Several olefin crackers and associated derivative polymer units have been shut down, as has about 2.5 million b/d of refining capacity.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and PP.
According to MRC's ScanPlast report, Russia's overall PE production totalled 1,712,400 tonnes in the first seven months of 2020, up by 58% year on year. Linear low density polyethylene (LLDPE) accounted for the greatest increase in the output. At the same time, overall PP production in Russia increased in January-July 2020 by 24% year on year to 1,063,700 tonne. ZapSibNeftekhim accounted for the main increase in the output.