REFINERY MARGIN TRACKER: Hurricane Beryl affects USGC, Midwest margins in opposite ways

Refining margins in the two largest US refining centers—the US Gulf Coast and the US Midwest—illustrate how weather and storms can have diametrically opposite reactions on refining margins and regional crack spreads, a July 23 analysis from S&P Global Commodity Insights showed.

Hurricane Beryl swept through the US Gulf Texas Coast, making landfall in Matagorda, Texas, early July 8 as a Category 1 storm.

While most of the USGC Texas refinery system escaped relatively unscathed, some, like Marathon's 631,000 b/d Galveston Bay refinery, lost power and was expected to be down for at least a week.

But the biggest impediment to refinery operations and to regional demand was power and its slow restoration by CenterPoint, which kept normal post-hurricane demand depressed for a longer-than-normal time.

USGC refinery utilization dropped to 92.7% capacity for the week ended July 12 from 97% a week earlier, the most recent weekly Energy Information Administration data showed.

But the region's total gasoline stocks rose to 88.9 million barrels from 86.1 million barrels as some gas stations affected by sustained power outages were unable to allow drivers to pump gasoline, lowering regional demand.

USGC cracking margins for WTI ended July 12 averaged $11.84/b, according to margin data from Commodity Insights, and margins fell further to $10.89/b for the week ended July 19. UGGC third-quarter 2024 margins are lagging those of Q3 2023, even though ULSD exports to Europe hit a record high in July.

While Beryl created some market distortions, questions swirled around the strength of demand for gasoline and diesel.

Despite the power outages and broader impact of Hurricane Beryl on refinery utilization, total US product inventories built in the week by nearly 7 million barrels, according to John Royall, an analyst with JP Morgan in research note.

"We think that the system having a significant counter-seasonal inventory build despite some meaningful unplanned run impacts is indicative of more supply than demand today," he wrote.

Royall noted EIA data showed both four-week average gasoline and diesel demand has fallen below pre-coronavirus pandemic levels, down about 5% and 8%, respectively, which have raised gasoline and diesel inventories into the middle of their respective five-year ranges.

"We think it will take a strong move up on the demand side or an unplanned supply event (with an impact more significant than that of Beryl) to pull inventories back down toward five-year lows and to ultimately firm cracks back," he added.

Platts, a unit of Commodity Insights, assessed USGC CBOB cracks at an average $8.7781/b in the week ended July 12, rising to an average $9.2635/b for the week ended July 19.

Midwestern refiners scramble for supply as margins rise

Beryl traveled northeast, weaker but continuing to wreak havoc in its path. In Illinois, heavy thunderstorms created tornadoes, with an EF-2 tornado touching down near ExxonMobil's 251,800 b/d Joliet refinery, just outside Channahon, Illinois. The tornado decimated the region's transmission lines, which cut power to the plant July 15.

Chicago refined product prices jumped on news of the outage, given ExxonMobil Joliet is an "exchange partner" with other Midwest market players, including BP, Marathon, and Phillips 66, which means they were unable to meet supply contracts with them.

As refiners scrambled for supply, they looked to the Explorer Pipeline which runs from Port Arthur, Texas, to Hammond, Illinois, and increased demand exceeded pipeline space, forcing the line to freeze allocations on four cycles through early August.

The outage also sent refining margins higher in both Midwest markets. Chicago cracking margins for WTI ex-Cushing, which averaged $8.42/b for the week ended July 12, inched up to $11.96/b for the week ended July 19, and as of July 23, are averaging $17.65/b for the week ending July 26, according to Commodity Insights margin data.

As some refiners sent trucks west to buy gasoline and diesel at racks in Group 3, margins there rose as well.

In the Group 3 market, WTI cracking margins ex-Cushing, which averaged $12.60/b for the week ended July 19, are averaging as of July 23 at $14.26/b, Commodity Insights margin data shows.

July 23 news that power was restored to Joliet was a positive for supply, but sources familiar with refinery operations said the plant would be shut for two months. Earlier, an ExxonMobil spokesperson said that they would have to do a complete damage assessment once the power returned.

Regardless, Q3 2024 refining margins in both the USGC and the US Midwest are lagging those of Q3 2023, continuing the weaker quarter-on-quarter margin trend seen in Q2.

Margin indicators from Valero Energy, which kicks off the US refiners Q2 earnings season July 25, show that the company's Q2 2024 Midwest margins came in at $13.73/b, compared with $19.44/b in Q2 2023.

So far in Q3 2024, Valero's Midwest indicators are averaging $12.40/b, compared with the $26.24/b indicator in Q3 2023.

Along the USGC, where Valero is a major player, Q3 2024 indicators are averaging $13.20/b versus $23.40/b in Q3 2023. In Q2 2024, USGC indicators averaged $14.01/b, compared with $16.15/b in Q2 2023.