USGC coking margins supported by exports

US refiners are keeping eye on margins as they consider run cuts in light of falling demand imposed by COVID-19, while firming up operational plans to deal with any possible positive diagnosis of the virus at their plants.

So far, US Gulf Coast refiners appear relatively immune as margins stay positive, local refinery and market sources said.

"There are no changes yet. They are all waiting to see if employees are going to start to get sick first," said a source familiar with operations at several USGC refineries.

Margins for those refiners to make both diesel and gasoline are holding in positive territory, according to S&P Platts Global Analytics. The Mars coking margin in the USGC was $5.74/b on Tuesday, up from the $4.70/b on Monday, supported by local demand and the diesel export market.

Similarly the WTI MEH cracking margin for USGC refiners rose to $4.28/b Tuesday from $2.82/b on Monday, supported by exports as well as strong domestic demand spurred by a gasoline price low enough that lines are forming gas stations.

Refiners are even bringing back units after planned work, sources said.

Motiva is in the process bringing back up its gasoline-making fluid catalytic cracking unit after planned work, while Total and Valero are also returning units to service from planned work.

However, a positive diagnosis for COVID-19 at a refinery could be a game-changer for plant operations.

"Not everybody can stay self-contained. You can't run a unit from home," said one refinery source.

Most refiners have protocol in place to deal with disruptions in operations, whether due to health-related issues, work actions, or weather-related outages. But operations could be impacted if a large number of the refineries' dedicated process unit operators are sidelined.

"We can confirm that all Phillips 66 assets are operational at this time. Also, we have specific pandemic-related business continuity plans in place that take safety of employees foremost into account while maintaining operations," said Melissa Ory, Phillips 66 spokeswoman via email.

RISKY BUSINESS FOR SOME MIDWEST REFINERIES

Inland refiners, like those in the Midwest, are most at risk, because they have limited outlet for their products, even though they have good access to price-advantaged crude from the Bakken, Permian and Western Canada.

"As long as margins are positive and you are not at tank tops – run," said Rick Joswick, Global head of Pricing and Trade Flow Analytics at S&P Global Platts Analytics.

Joswick said if refiners lose the demand in their own market and can't sell elsewhere, they may be forced to cut rates, citing inland US refiners and those in Europe as those most at risk.

In the Midwest's Group 3 market, with virtually no access to product outlets outside its borders, cracking margins for WTI ex Cushing remain positive but below USGC levels at $3.78/b on Tuesday, Platts Analytics data shows.

But Midwest market sources said there is evidence runs are already slowing there.

"I haven't seen any numbers [as to rate cuts]. But I already see it in the data. Look at the draw in products today. Look at the utilization," said one Midwest-based market source.

Weekly inventory data released earlier by the Energy Information Administration Wednesday showed Midwest refinery utilization for the week ended March 13 fell to 85.5% of capacity from the 87.7% the week earlier.

Midwest gasoline stocks fell to 57 million barrels from 58.2 million barrels while distillate stocks were down 1.2 million barrels to 31.2 million barrels, EIA data shows.

USAC PLANTS FOLLOW THE CRACKS

On the US Atlantic Coast, Phillips 66 brought back this weekend its 145,000 b/d fluid catalytic cracking unit at its 158,000 b/d Bayway refinery in Linden, New Jersey, which was shut for repairs since early February.

Monroe's 190,000 b/d Trainer, Pennsylvania, refinery is also running at about 185,000 b/d.

"They [management] have suggested we run as high as we can but follow the crack spreads closely. Last I heard we were still near 185,000 b/d. For now, we have no plans [to cut rates] unless pressed with Delta not making any money," said one source familiar with refinery operations.

"We are like a wallet to them," he added.

It was unclear if PBF had brought back to full rates its 182,200 b/d Delaware City, Delaware, refinery after a fire in the oil desulfurizer slightly cut rates last week.

On the US West Coast, Phillips 66 was said to be cutting back runs at their California refinery, due to weak demand for gasoline, market sources said.

SELF-HELP THROUGH HIGH PLANNED MAINTENANCE SCHEDULE

One mitigating factor to putting the brakes on refinery output is the high amount of maintenance planned for US refineries over the next month.

Throughout the US, roughly 3 million b/d of refinery capacity – about one-sixth of total US refinery capacity – is scheduled to be offline for planned work through the end of April, according to Platts Analytics data.

So with positive margins and low crude prices, refiners who are operating are still are getting the signal to run.

"There's plenty of cheap crude and margins are not negative," said Sergio Baron, consultant with Platts Analytics.

"Diesel holding better than other products," he said, adding that he doesn't see any discretionary run cuts on a large scale.

Front-month NYMEX ULSD or diesel cracks using the WTI crude benchmark settled at $16.55/b on Tuesday, compared with the $15.26/b on Monday. Front-month NYMEX RBOB cracks rebounded even more to $2.93/b on Tuesday from 28 cents/b Monday.

However, refiners are keeping a close eye on the supply/demand picture to make sure they are operating most efficiently and effectively in the face of falling product demand.

"Although we don't provide specific comment on run rates, I can say that our Refining and Marketing teams work closely, and we are always prepared to optimize our operations based on market needs," said Jamal Kheiry, spokesman for Marathon Petroleum.