REFINERY MARGIN TRACKER: US margins strengthen as inventories start to normalize

New York — US refining margins rose in the week ended Jan. 22 as refined product inventories normalized and cold weather set in across parts of the nation, an analysis by S&P Global Platts showed Jan. 25.

Despite the slow rollout of the coronavirus vaccine, positive sentiment going forward for an increased pace of recovery had Tudor Pickering updating 2021 earnings estimates, upgrading refiners like Marathon Petroleum and PBF based on "improving futures cracks and normalizing inventories," Tudor Pickering Holt analyst Matt Blair wrote Jan. 25.

Last week, the weekly front-month NYMEX crude-RBOB crack spread averaged $11.81/b compared with the weekly six-month NYMEX crude-RBOB crack average of $16.51/b.

In the Midwest, Bakken cracking margins rose 71 cents week on week to $9.08/b for the week ended Jan. 22, while coking margins for WCS ex-Cushing averaged $6.62/b, up $1.02 on week, according to S&P Global Platts Analytics margin data.

US Gulf Coast margins also gained, with WTI MEH cracking margins inching up 4 cents to $8.43/b, while USGC coking margins for WCS ex-Nederland gained 31 cents to average $8.32/b.

On the US West Coast, cracking margins for Alaska North Slope averaged $9.80/b, up 68 cents, while USWC Arab Medium coking margins averaged $10.61/b, up 65 cents.

While US Atlantic Coast margins were slightly lower week-on-week, they rose at the tail end of the week. Bonny Light cracking margins, which posted a weekly average of $6.16/b, down 30 cents, ended up at $6.38/b on Jan. 22.

The USAC is experiencing its first cold snap of the season, increasing demand for heating fuels. A storm tracking from the Midwest is expected to bring areas of heavy snow and ice from Kansas to the east later in the week, according to the National Weather Service.

Normalizing inventories

Surprisingly, US gasoline stocks fell by 300,000 barrels for the week ended Jan. 15 to 245.2 million barrels on lower production and increased exports, according to US Energy Information data, contrary to analysts' expectations of a 2.5 million-barrel build.

The decline put US gasoline inventory down 5.7% compared with last year's level but up 3.7% year on year on days of supply as implied gasoline demand fell 6.3% year on year, according to Credit-Suisse analyst Manav Gupta.

Distillate stocks grew by 500,000 barrels the week ended Jan. 15 to 163.7 million barrels, EIA data shows, despite lower production and increased exports. Weak demand is keeping distillate inventories 12.1% higher than last year's level, as implied demand fell down 12.9% year on year, Gupta noted.