US oil refining profit margins hit their highest level in three months on Tuesday and are likely to trend higher, analysts said, as unplanned refinery outages affect already limited fuel supplies. The power outage has pushed up gasoline prices in Texas and Oklahoma this year ahead of what is expected to be a heavier than usual refinery turnaround season. High spreads and spreads is unusual for this time of year, when travel is down.
The crack span, a key measure of refiners’ profits that measures the difference between crude oil prices and finished product selling prices, touched $42.41 on Tuesday, the highest level since October. An analysis of Refinitiv Eikon data showed that the January five-year average is $15.56. Gasoline prices in Texas averaged about $3.07 a gallon on Tuesday, up nearly 44 cents from a month ago, according to AAA Automotive Group, whose data showed that motorists in Oklahoma also pay about 45 cents, at $3.13 a gallon.
A diesel production unit at the Chalmette, Louisiana, refinery of BP Energy Corp. was shut down after a fire on Saturday, putting it out of service for at least a month. ExxonMobil said Monday that it will perform planned maintenance on several units at its petrochemical complex in Baytown, Texas.
The current refinery maintenance season could be much longer than usual, as many US Gulf Coast refineries are still operating below capacity after Winter Storm Elliott shut down 1.5 million barrels per day of refining capacity in December. The Suncor refinery in Commerce City, Colorado, has been out of commission since the storm.
Many repairs have also been delayed due to the pandemic, and refiners are now planning twice as many repairs this spring than usual, adding pressure to fuel supplies. Fuel inventories are low compared to historical levels, “so there is little margin for error,” said Rob Thumel, portfolio manager at Tortaz. US gasoline inventories remain about 10% below normal and diesel stocks about 20% below normal.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said the upcoming ban on Russian seaborne fuel shipments would draw new calls for refined products in the US. Hansen said: “Europe’s diesel supply from the United States and the emerging refining center in the Middle East may account for some of the missing barrels from Russia, but the shortage seems likely.”
Analysts expected the increase in US crude oil stocks to extend the off-season in the week ending January 13 amid continued weak demand for refineries. US commercial crude inventories likely jumped by 900,000 barrels to about 440.5 million barrels during this period. The increase would put inventories 1.1% above the five-year average of US Energy Information Administration data, opening up the largest surplus since April 2021.
It is likely that continued weak refinery demand has contributed to the seasonal counter-building. Total refinery utilization is expected to have increased by 2.8 percentage points during the week, to average around 86.9% of capacity. At that level, operations would be 3% below average for this time of year and 5.1 percentage points lower than mid-December, before the cold snap affected a combined distillation capacity of 6 million barrels per day at more than 20 facilities.
Meanwhile, S&P Global forecasts that total net crude refinery inputs would average around 15.6 million bpd in the week ending Jan. 13, 4% below normal for the time of year.
While most of the December outages have been restored, a handful of refiners are still dealing with residual effects from the deep freeze. The 593,000 bpd Marathon Petroleum refinery in Galveston Bay was still operating at “minimum rates” as of January 10, and the operator was considering upgrading the planned major shift due to already reduced operating rates.
Meanwhile, Midwest refineries have been working to restore operating rates after a long spell of rain and winter storms. Weeks of reduced refinery runs have added a headwind to the production of the refined product. Total gasoline inventories are expected to have increased by 1.4 million barrels in the week ending June 13, but that build would leave them behind the five-year average at 8.6%, from 7.8% in the previous week and the widest deficit since late June.--
Widespread refinery outages would likely have reduced gasoline stocks had it not been for a sharp drop in demand. Total gasoline supplied, the EIA’s proxy for demand, fell sharply after the Christmas holidays and averaged about 9% below normal over the past two weeks. Analysts said national distillate stocks likely fell by 500,000 barrels to about 117.2 million barrels.-
At a time when the US Energy Information Administration expected the prices of crude oil and petroleum products to decline during the years 2023 and 2024, as it is expected that the increase in oil production in the United States and elsewhere will offset the decline in Russian oil production and allow the building of global oil stocks.
US and non-OPEC producers are expected to add 2.4 million barrels per day of oil production in 2023 and 1.1 million barrels per day in 2024, while liquid fuel production in Russia is expected to decrease by 1.4 million barrels per day in 2020. 2023 to 9.5 million barrels, and another 100,000 barrels per day to decline, with an average of 9.4 million barrels per day in 2024.
The United States is set to contribute 40% to global oil production growth in 2023 and 60% in 2024, making it the largest source of production growth in its forecast, followed by OPEC. The Energy Information Administration cited U.S. crude production mostly in the Permian fields as well as increases in hydrocarbon gas liquids and biofuels production as the main drivers of U.S. production growth.
The Energy Information Administration raised its forecast for 2023 for US oil production by 70,000 barrels per day, to 12.41 million barrels per day, and expects production growth to continue through 2024 to put US crude production at 12.81 million barrels per day.
However, relatively low capital investment from U.S. oil producers could negatively affect production growth in the United States and delays in the start-up time of projects in Brazil, Canada, Norway and Guyana could impede oil supply growth, the EIA said about the uncertainty that could undermine her expectations.
Despite these uncertainties, the Energy Information Administration expects global oil production to exceed global oil consumption. It cut its forecast for global oil demand in 2023 by 340,000 bpd to 100.48 million bpd. Primarily driven by growth in China, India and other non-OECD countries, it expects that demand to rise in 2024 to 102.2 million barrels per day, but not enough to outpace global oil production, building up global oil inventories over over the next two years, which is expected to lead to downward pressure on fuel prices.
The EIA also cut its 2023 forecast for WTI by $9.18 to $77.18 a barrel, down from an average of $94.19 a barrel in 2022. The agency expects WTI in 2024 at $71.57 a barrel and Brent in 2024 at $71.57 a barrel. $77.57 per barrel.
Lower crude oil prices, as well as lower wholesale refining margins, are expected to push retail gasoline prices down to an average of $3.32 a gallon this year, 19 cents lower than the previous estimate. It sees gasoline prices continuing to fall to an average of $3.09 per gallon in 2024.
Diesel prices will remain higher than gasoline prices as the market continues to adjust to turbulence largely related to reactions to Russia’s all-out invasion of Ukraine. Russia has been a major supplier of diesel fuel to Europe, which now imports more of its supplies from the Middle East and India.