California's stay-at-home order to further dampen demand for state refiners, run cuts loom

California's stay-at-home order from Governor Gavin Newsome to its 40 million residents took effect midnight Thursday and is expected to further weaken the state's demand for gasoline and diesel, sending prices lower and opening the possibility refiners will start cutting runs, market sources said Friday.

Several of the state's refinery operators said they continue to monitor the situation and their plants continue to operate. While they did not discuss current refinery utilization rates, they left the door open for rate changes if necessary.

"Our facilities are maintaining production capabilities," said Jamal Kheiry, spokesman for Marathon Petroleum.

Kheiry said Marathon, like other refiners, was exempt from state and local restrictions to "ensure this service and have implemented other measures at our facilities" to protect their employees and other involved parties.

"We continue to monitor the latest local and national developments regarding COVID-19 and adjust our response to the situation daily, as events warrant," he added.

Marathon owns and operates two refineries in California, the 161,500 b/d Martinez plant and a 363,000 b/d Los Angeles-area refinery, where it is putting the finishing touches on a project which integrated two separate refineries.

Market sources said Marathon was getting ready to start up the hydrocracker and reformer at the combined plants soon, which may push regional gasoline inventories out of its "five-year band."

Refinery stocks of CARB gasoline were 6.4 million barrels for the week ended March 13, according to California Energy Commission data, down 3.7% from the week earlier when stocks stood at 6.6 million barrels.

Intra-day prices Friday for CARB 85.5 gasoline were at a 12 cent/gal discount to the front-month RBOB futures, holding at Thursday's levels, according to Platts data, compared with a minus 1 cent/gal discount Wednesday.

DIESEL HOLDING UP

Diesel prices were holding better than gasoline, although trade was slow.

"It's dead," said one market source, referring to thin trade in the Los Angeles diesel market as evidenced in the wide spread between bids and offers.

"Diesel is like minus 5 to plus five," he added.

In San Francisco, CARB diesel was pegged at 5.75 cents/gal over April NYMEX ULSD, while CARB priced off the May screen was pegged at a 5.75/gal premium, according to Platts assessments.

Diesel prices got some support from lower stocks. California's CARB diesel stocks were just under 1.4 million barrels for the week ended March 13, down 27.6% from the week earlier.

The state's jet stocks were also down, but less severely, to 1.76 million barrels from the 1.79 million barrels the week earlier, but demand continues to drop as more travel is curtailed.

"The biggest issue with most refiners is that jet demand is dropping rapidly, so most California refiners (are) likely to reduce runs to manage jet inventories; drop it into diesel and into LSFO," a source with a USWC-refiner said.

Phillips 66, which operates a 120,200 b/d refinery in Rodeo and a 139,000 b/d Los Angeles-area refinery in Wilmington, said "All Phillips 66 assets are operational at this time," adding media reports that its Los Angeles refinery was shut were not accurate.

California-based Chevron said its two refineries in the state continue to operate and supply products.

"The Richmond and El Segundo refineries are taking precautionary measures to reduce the risk of exposure," said company spokesman Braden Reddall in an email.

At its gas stations, Chevron is taking "precautionary measures to reduce risks of exposure, and we have business continuity plans in place to help minimize impacts to operations," he added.

"Chevron's fuel supply capabilities are also holding steady," he said.