REFINERY MARGIN TRACKER: USWC margins shine as California starts to loosen pandemic restrictions

New York — US refinery margins were weaker across the country last week, but refiners on the US West Coast continue to weather the pandemic-led low-demand scenario better than other regions as California begins gradually reopening, an analysis from S&P Global showed Monday.

USWC margins, particularly for refiners running South American crudes, strengthened last week. Stay-at-home orders in much of South America have shut plants there and freed up barrels of Colombian and Ecuadorean crude at economic prices.

But USWC refiners cracking regional benchmark Alaska North Slope saw a hefty drop off in week-on-week margins, to $9.60/b for the week ended May 15 compared with the $15.05/b the week earlier, according to S&P Global Platts Analytics margins, despite an uptick in demand.

"We have seen California gasoline demand increase nicely and may be plateauing," said PBF's CEO Tom Nimbley on Friday's first-quarter earnings call.

Like many of its refining brethren, PBF is running some of its gasoline-making units at minimum rates, including the unit at the 161,500 b/d Martinez plant recently acquired from Shell, as it seeks to keep balance in California's gasoline market, where demand is 75% of last year's level, Nimbley said.

California reopening supports gasoline

But demand in California, the first state to go into lockdown, is on the rise as parts of the state begins to emerge from the lockdown put in place to prevent the spread of the coronavirus.

Monday California's Bay Area, which has 8 million residents, on Monday entered the second phase of the Governor Gavin Newsom's four-phase plan for reopening, which allows permits curbside retail, manufacturing, business offices and other services to open.

California gasoline production rose last week in anticipation of looser restrictions and to counter a 2.5% drop in CARB gasoline stocks for the week ended May 8, state data showed.

According to the state's Weekly Fuels Watch, California refiners increased total gasoline production by 5.6% for the week ended May 8; however, CARB gasoline production increased by 21.7%, while non-California gasoline production fell by 44.8%.

But the reopening of Los Angeles area counties is expected to be delayed, as the new state criteria is gives local government more latitude in reopening.

USWC coking margins rise

USWC coking margins for Vasconia rose to $9.87/b for the week ended May 15, from $7.59/b week prior, in part due to the widening spread between the Colombian crude and Dated Brent to $5/b from $4.39/b as diesel inventories dropped.

California's CARB diesel stocks fell by 12.7% for the week ended May 8, despite a 2.7% increase in production by the state's refiners.

Despite healthy California margins, Nimbley said refiners have to be careful to ensure they don't move to fast to increase production.

"We are starting to open up states in this country. We're not out of the pandemic yet. So we certainly hope we don't see a second wave," Nimbley said.

Nimbley said the majority of US crude capacity is operated by independent refiners like PBF and "all have recognized and acknowledged they are not going to swallow the bait."

"They are going to be very tempered in making sure that any recovery in demand is sustainable before they increase runs," he added.