Refinery margin tracker: USAC margins get a lift as Canadian refineries shut down, cut rates

New York — US Atlantic Coast refining margins ticked up last week as some East Coast Canadian refineries began to cut rates or shutdown as gasoline demand slumps from stay-at-home orders in the region to prevent the spread of coronavirus, an analysis from S&P Global Platts showed Monday.

Newfoundland's 130,000 b/d Come by Chance refinery is "transitioning to standby mode this week," a company spokeswoman said, while market sources said that Irving's 330,000 b/d refinery in Saint John, New Brunswick, were cut by 25%-30% as gasoline cracks turned negative.

USAC cracking margins for Arab Light averaged $6.76/b for the week ended March 27, compared with the $3.30/b the week ended March 20, S&P Global Platts Analytics data showed.

Cracking margins for North American crudes Bakken and Eagle Ford averaged $4.60/b and $9.50/b, respectively, for the week ended March 27, from 37 cents/b and $3.19/b the week earlier as the full force of a week's worth of USAC run cuts took hold.

NYMEX front-month RBOB crack versus the NYMEX front-month light, sweet crude contract averaged minus $2.02/b for the week ended March 27. Monday it settled at $4.50/b.

Over the last two weeks, Phillips 66 cut rates at its 258,000 b/d Bayway refinery in Linden, New Jersey, by about 20% and Delta's Trainer, Pennsylvania, refinery is running at 150,000 b/d, down from the normal 190,000 b/d.

PBF is running at 70% capacity at its two USAC refineries – the 160,000 b/d Paulsboro, New Jersey, plant and the 182,200 b/d Delaware City, Delaware, plant. About two weeks ago, PBF switched to maximum diesel mode at Delaware City at the continued strength of the front-month NYMEX ULSD crack, which settled at $22.72/b Monday.

This, combined with the contango market for ULSD, where front-month April is holding a 6 cents/b discount to August, means the region will have to look to other areas to bring in more ULSD due the demand for storage.

However, as storage fills up, the demand and the cracks for ULSD could slide.

"As long as there is contango, everyone will store, and I don't see that going away, but once storage is full then it will be difficult if there is still no demand for ULSD [outside of storage]," one trader said.

USAC MARGINS SUPPORTED BY ULSD CONTANGO

Demand for ULSD storage from the contango market structure has led the Atlantic Coast to look for ULSD in other regions, with two of the most notable sources being the US Gulf Coast via the Colonial Pipeline and imports from Canada.

The USAC's particular responsiveness to contango market is part of its location as well as being the terminus of the Colonial Pipeline. The pipeline cut flows by 20% last week on its gasoline and distillate lines, which carries 1.37 million b/d of gasoline and 1.16 million b/d of ULSD, heating oil and jet from Pasadena, Texas, to Greensboro, North Carolina.

From Greensboro, the two lines meet the 504,000 b/d Line 4 that runs to terminals in Virginia and Maryland and the 855,000 b/d multi-product Line 3 that runs to Linden, New Jersey -- the pricing point of NYMEX RBOB and ULSD.

Shipping sources said last week there was a lot of interest in ships to pick up cargoes of gasoline and diesel from Eastern Canada to export to the US Atlantic Coast. In an unusual move, last week, two product cargoes were seen loading from Quebec, where Valero has a refinery, and Montreal, where Suncor's refinery began to cut rates last week.

Between March 11 and March 24, the Atlantic Coast has imported about 50,000 b/d of ULSD, US Customs data showed, with virtually of it from Canada and heading to the northern part of the USAC.

Therefore, with Come by Chance shutting down for an unknown amount of time, it is apparent the Atlantic Coast ULSD market will have to look to other avenues for the product.

"Some [imports] will come from Europe for storage, but most barrels will come from the pipeline and exports from Canada would also go to the Atlantic Coast," the trader said.

USAC SHIPPING FROM THE US GULF COAST ALSO CONSTRAINED

Besides the across-the-board flow cuts, Colonial announced an allocation for the 19th cycle on its distillates-only Line 2 on March 26. An allocation occurs when there are more requests to ship on the pipeline than there is capacity, thus impeding refiners from shipping excess barrels on the pipeline for that specific cycle.

Despite the tighter access to the USAC, USGC margins also gained, as refiners like Phillips 66 and Valero also cut runs at their USGC plants. The Mars coking margin averaged $9.89/b for the week ended March 27, compared to $5.54/b the week earlier, Platts Analytics Data shows.