Worldwide refinery margins softened last week as the overhang of diesel stocks is seen weighing on refinery operations across the globe, an analysis from S&P Global Platts showed Sept. 28.
However, some diesel stocks are falling as normal seasonal demand patterns return and refiners in most regions continue to draw on inventories to supply demand, keeping refinery runs low. This is likely to improve overall refining margins as cold weather and the harvest season draw nearer, increasing demand.
But in the US, refiners are running at about three-quarters of capacity in maximum gasoline mode. Gasoline production increased by almost 500,000 b/d to 9.315 million b/d, while diesel production has remained steady, at 4.319 million b/d for the week ended Sept. 18, the most recent Energy Information Administration data showed.
The EIA reported clean product stock draws of 7.389 million barrels for the week ended Sept. 18, with gasoline drawing for the seventh straight week and diesel for the third, holding at 2 million barrels and 31 million barrels, respectively, over the five-year average.
“However, year-on-year demand trends worsened for gasoline (down 9% year on year but actually flipped positive for diesel – up 2% year-on-year),” wrote Morgan Stanley analyst Phil Gresh in his weekly EIA research note.
US gasoline demand averaged 8.515 million b/d for the most recent week, up from the week earlier’s 8.478 million b/d, while distillate demand rose more sharply – to 3.959 million b/d from 2.809 million b/d.
US refiners set to ramp up rates
USGC cracking margins for WTI MEH averaged $1.39/b for the week ended Sept. 25, down from $1.70/b the week earlier.
USGC coking margins also dropped, with USGC Mars coking margins averaging $3.06/b compared with $3.28/b the week earlier. However, they still eclipsed those of gasoline, due in part to stronger export demand.
USGC ULSD exports averaged 419,000 b/d in the week ended Sept. 25, while gasoline exports dropped to 121,000 b/d for the same time period from 269,000 b/d exported the previous week, according to commodity tracking data provider Kpler.
And US refiners are expected to ramp up rates in the near future. S&P Platts Global Analytics forecasts 4.352 million b/d of US refining capacity will be offline in October, slightly less than the 5.066 million b/d offline in September.
However, fears of a second wave of the coronavirus could see the return of stringent lockdown restrictions in order to stem the spread of the virus. In Quebec, Canada, both Montreal and Quebec City – the province’s two largest cities – have seen a resurgence in cases and the provincial government is expected to react swiftly to reimpose some kind of lockdown.
Asian stocks build on high refinery rates, low demand
In China, high product stocks and weak export markets remain a concern to refiners, as the country’s storage tanks are seen at working limits, Platts Analytics said. In the May-to-August time period, Chinese refiners ramped up runs by about 10.6%, or 1.35 million b/d, while exports of the main refined products – gasoline, diesel and jet fuel – are about half of what they were from April’s peak.
The market imbalance helped propel Chinese refining margins for Saudi Arabia’s Arab Light further into negative territory for the week ended Sept. 25, averaging minus $3.50/b from minus $3.39/b the week earlier.
Platts Analytics notes that several refineries owned by China’s national oil companies have reduced runs by about 4% in September but the country is seeing a return to more normal demand as it seems to have the coronavirus under control.
“It is likely for China’s crude runs to moderate somewhat by then [the end of the year] as they increasingly return back to the level of demand and exports,” according to Platts Analytics.
India also reported domestic gasoline demand down 5% year-on-year in August while diesel demand was down 18%. Much like Europe, diesel is India’s main passenger vehicle fuel and demand has suffered due to coronavirus lockdown restrictions, according to Gresh.
Total clean product inventories in Singapore remain above the seasonal highs, with middle distillates rising by 2.63% rise in inventories to 15.66 million barrels for the week ended Sept. 23, according to Enterprise Singapore.
However, light distillates stocks fell to 14.24 million barrels from the 17.45 million barrels as spot demand for gasoline emerged from Viet Nam and India.
Singapore margins, however, moved further into the red, with the Dubai cracking margin dropping to minus $2.37/b for the week ended Sept. 25 from the minus $2.13/b the week earlier.
Europe – more run cuts needed
In Northwest Europe, diesel and gasoil inventories in the oil hub of Amsterdam-Rotterdam-Antwerp dropped last week from a 13-month high by 5.5% to 2.787 million mt as of Sept. 23, according to Insights Global data.
European market sources said that exports markets remain closed, and while many of the NWE and Mediterranean refiners have cut rates to minimum levels, those that have not are likely to cut as margins are barely in positive territory.
Italian refining margins for CPC Blend averaged $1.95/b for the week ended Sept. 23, compared with the $2.16/b the week earlier, overshadowing ARA margins. ARA Bonny Light cracking margins fell to 98 cents/b from $1.49/b in the same time period.