REFINERY MARGIN TRACKER: US refiners' discipline pays off as margins rise but coronavirus resurgence looms

US refinery margins are picking up as demand inches higher, runs stay low and inventories begin to level off, a testament to the discipline practiced of US refiners, an analysis from S&P Global Platts showed on Oct. 5.

US Gulf Coast cracking margins for WTI-MEH averaged $5.81/b for the week ended Oct. 2, compared with the $4.65/b the week earlier, according to S&P Platts Global Analytics, as national gasoline demand showed improvement.

US gasoline demand rose by 14,000 b/d for the week ended Sept. 25 to 8.529 million barrels, the most recent Energy Information Administration data showed. However, the four-week average demand of 8.11 million b/d remains well below last year's 9.37 million b/d.

Margin gains were capped by a 70,000 b/d US stocks rise to 228.2 million for the week ended Oct. 2.

However, fears of a second wave of coronavirus outbreaks have some states reinstituting or considering reinstating lockdowns to limit human mobility as new cases across the country have begun to trend higher.

And President Trump's hospitalization for the coronavirus has created concern about social distancing. Trump and some of close associates participated in several crowd events across the country in the course of reelection campaigning prior to diagnosis.

Over the past two weeks, new US cases of the coronavirus have risen 34,491 or 6%, according to Johns Hopkins data.

While the country's September unemployment number of 12 million show an improvement from previous months, it is still about double what what it was before the pandemic, putting a ceiling on gasoline demand growth.

This weak demand continues to keep refinery run rates below optimum levels for most plants. For the week ended Oct. 2, refinery utilization averaged 75.8%, below economic breakeven levels for many refiners.

Distillates demand falls but so do stocks

Week-on-week US distillate demand fell by 304,000 b/d for the week ended Oct.2 to 3.66 million b/d. Demand for residual fuel rose 270,000 b/d to 408 million b/d as refiners replace crude with resid as a more economic feedstock for their plants during the same time frame.

But last week's 3.1 million barrel distillate stock draw pushed US supply down to 172.8 million barrels.

As a result, coking margins and distillate cracks have been rising, particularly in the US Midwest, as harvest season gets underway. Midwest refinery utilization moved up by 5.2% to reach 84.2% for the week ended Sept. 25.

And regional refinery utilization could rise further on increasing agricultural demand.

Midwest coking margins for mainstay Western Canada Select rose to average $6.22/b for the week ended Oct. 2, compared with the $4.29/b for the week ended Sept. 25, Platts Analytics data showed.

Lower crude prices combined with higher Chicago ULSD prices supported stronger margins.

The weekly average price of WCS ex-Hardisty fell by 68 cents/b to below $30/b for the week ended Oct. 2 to $29.05, while the price of Chicago ULSD rose – to $1.1274/gal from $1.100/gal the week earlier, Platts assessments showed.

Despite increased runs, ULSD stocks dropped by 500,000 barrels to 32.1 million barrels for the week ended Oct. 2 from the week earlier, supporting a rise in Chicago ULSD-WCS cracks to $18.30/b from $16.51/b.