REFINERY MARGIN TRACKER: US margins hold value, demand normalizing amid vaccine rollouts

US refining margins for the week ended March 26 slightly weakened but remained healthy, an analysis from S&P Global Platts showed March 29, as warmer spring weather spread across much of the nation and coronavirus vaccine rollouts continued to pick up the pace.

The warmer weather combined with increased access to the three US-approved vaccines have made many feel more comfortable about diminishing contagion risks, releasing pent-up driving demand by those who have been isolating in their home for the past year.

According to Center for Disease Control data, as of March 28 about 28% of US citizens have received at least one of the two shots required by some vaccines, with a 70% vaccination rate expected by June 16 and a 90% rate by July 24.

Gasoline leading demand recovery

Between May and July, S&P Platts Global Analytics expects global oil demand to increase by 7.2 million, far surpassing the historical demand gain of about 2.7 million b/d for those months seen from 2015 and 2019. The key risks are the pace of demand normalization in the US and Canada, which along with Europe account for about 44%, or 3.1 million b/d, of the gain, Platts Analytics noted.

Globally, increased gasoline demand will account for 2.07 million b/d, or about 29%, of total demand growth during the period.

Transportation fuel demand from the distillate pool is expected to lag gasoline, with gasoil and diesel demand forecast to rise by 1.51 million b/d, or 21%, and jet demand growth pegged at 1.20 million b/d, or 17%.

USGC refinery margins tempered

Refinery utilization along the US Gulf Coast showed the biggest gain across the nation over the past few weeks, as refiners appear to have moved past mid-February's polar vortex with stymied operations.

For the week ended March 19, USGC refinery runs averaged 78.9% compared with 70.7% the week earlier, the most-recent Energy Information Administration data showed.

Last week's higher runs shaved the region's refinery margins, but they still far surpass those of a year earlier.

USGC cracking margins for WTI MEH averaged $12.67/b for the week ended March 26, compared with $12.82/b the week earlier, Platts Analytics data showed. But year over year, Q1 2021 margins to date are averaging $10.27/b compared with $8.19/b for Q1 2020.

USWC margins dip

As of March 11, US driving had increased 24% over the Jan. 13, 2020, baseline used by Apple to measure coronavirus mobility trends. However, in California, driving has increased by only 4%, as coronavirus cases there continue to rise, despite the state's 29% vaccination rate. Los Angeles is leading the US with over 1.22 million confirmed cases as of March 26, according to Johns Hopkins data.

USWC refining margins for Iraq's Basrah Light—a recent popular import into USWC refineries by Chevron, Valero and BP—averaged $17.25/b for the week ended March 19 before slipping to $16.62/b for the week ended March 26, Platts Analytics data shows.

Despite its low driving rate, California, the largest user of gasoline in the country, increased crude feed to the state's refineries by 10.5% and production of its specially formulated CARB gasoline by 8.4% for the week ended March 19, according to the state's Energy Fuels Watch. This is due in part to increased driving from other USWC states that partly depend on California for its specially formulated gasoline. In Washington, Oregon, Nevada and Arizona, driving mobility picked up by an average 23%-37%, according to Apple Mobility data.

This increased demand from outside the state was reflected in the price of gasoline. Arizona 84 octane pipeline RBOB last week held a $1.75/gal premium over Los Angeles CARBOB 84, compared with the $1/gal discount it was trading at last year, S&P Global Platts assessments showed.