REFINERY MARGIN TRACKER: US Gulf Coast margins creep higher as frozen plants return

New York — As pandemic lockdowns accelerated the process to shutdown excess refining capacity, mid-February's freeze accelerated the recovery of US Gulf Coast refining margins, an analysis from S&P Global Platts showed March 15.

USGC cracking margins for WTI MEH averaged $13.54/b for the week ended March 12, compared with $12.61/b the week ended March 5, according to margin data from S&P Global Platts Analytics.

USGC refiners are returning from the deep freeze which pushed utilization to the lowest levels in about 30 years, with most affected plants in various stages of restart.

"We project further recovery this coming week," said Rick Joswick, global head of oil pricing and trade flow analytics at Platts Analytics, noting, "it still means a lot of refinery runs didn't happen."

As USGC refiners restart from mid-February's polar vortex, they are plagued with vestiges of extreme cold on equipment not designed for such weather, including pipeline leaks, snags on process units, and boiler problems hampering restarts.

For the week ended March 5, USGC refinery utilization averaged 60.7% of capacity, compared with 40.9% the week earlier, US Energy Information Administration data showed.

About 6 million b/d of USGC refinery was offline amid the freeze the week ended Feb. 26, with about 6.3 million b/d and 6 million b/d offline for the weeks ending March 12 and March 19, respectively, Platts Analytics data estimates.

Through the week ended March 12, Joswick said Platts Analytics estimated total lost crude runs from the freeze was about 80 million barrels, while lost US crude production was between 20 million and 25 million barrels.

The disparity between production and refinery runs led to a record crude build of 37 million barrels through March 5, while gasoline stocks drew 25 million barrels and distillates stocks 20 million barrels, respectively, due to low refinery utilization rates, Joswick noted.

Cracks rise

The gasoline stock draw put gasoline cracks higher, but as more refineries restart, margins are softening.

Front-month NYMEX gasoline cracks, which spiked up to settle at $24.61/b on March 12, softened to $23.08/b mid-afternoon March 15. Distillate cracks were weaker, with front-month NYMEX ULSD cracks settling at $17.03/b on March 12, then drifting to $16.48/b mid-afternoon March 15.

Improving gasoline demand has refiners shifting their yields away from diesel, particularly as the summer driving season nears and the USGC gasoline-to-diesel spread widens, putting a lid USGC coking margins.

"A lot of it is the recovery gathering pace as vaccinations spread worldwide and people start to travel more, drive more, especially more so than jet travel," Joswick said.

"We should see a lot more improvement as we go forward into April," Joswick added. "There is normally an increase just in the move to summer grade, which will occur later this month."

USGC coking margins also gained, albeit not as much as cracking margins. USGC Mars coking margins rose to $11.75/b for the week ended March 12, up from the $11.14/b the week earlier.

USGC CBOB, which held a 6.16 cent/gal discount to USGC ULSD on Feb. 2, was trading at 11.85 cents/gal on March 12, according to Platts assessments.