REFINERY MARGIN TRACKER: Atlantic Basin refiners brace for round two of coronavirus lockdowns

New York — Demand destruction arising from the coronavirus pandemic continues to take its toll on refining margins, highlighting in particular the weakness of Atlantic Basin refiners where the second wave of infection is forcing regional lock downs again, an analysis from S&P Global Platts showed on Nov. 16.

Atlantic Basin refining margins have traditionally lagged those of other regions with easy access to cheaper pipeline crude and new, more sophisticated refineries.

While these refineries also often tap the same North Sea and West African sources for their waterborne barrels, US Atlantic Coast margins generally outshine those of their Northwest European counterparts, which opens up the arb for NWE refiners to move mostly gasoline from Europe across the Atlantic.

For the week ended Nov. 13, USAC cracking margins for Nigeria's Bonny Light crude averaged $4.28/b compared with the NWE cracking margin of $1.38/b, according to S&P Global Platts Analytics margin data.

Both regions showed softer week-on-week margins, and the trend for both regions also show a continuation of the weakening trend as end of week margins fell from highs seen earlier. On Nov. 13 USAC Bonny Light cracking margins were pegged at $2.91/b while NWE Bonny Light cracking margins were 29 cents/b, compared with earlier week highs of $5.24/b and $1.85/b, respectively.

Lockdown Round Two

As new coronavirus cases surge in the Northeastern US, some states are rolling back reopening plans, reimposing restrictions on business hours, limiting the size of private gatherings, and, in the case of Massachusetts, issuing partial stay at home orders.

Since the Nov. 6 institution of partial stay-at-home orders, driving in Massachusetts is 19% below the Jan. 13 baseline for the week ended Nov. 15, according to Apple Mobility data. In New Jersey, driving is down 9%, due mostly to sporadic shutdowns of individual schools to prevent the spread of coronavirus.

However, the month-long lockdowns in Germany and France remain in force as the governments look to contain the second wave of the virus, cutting back mobility and driving demand for the week ended Nov. 15 by 16% and 56%, respectively. This is below the January 13 baseline for both, the lowest since mid-April's lows, according to Apple Mobility data.

On both sides of the Atlantic, refiners have cut back runs, closed some inefficient units and even idled indefinitely some plants, opting to pull supply from inventory.

Gunvor said it would mothball its Antwerp, Belgium, refinery, which stopped processing crude in May, but continue to use it for terminal activities. In the UK, Petroineos plans to mothball a crude unit and the gasoline-making fluid catalytic cracking unit, as both domestic and export demand fall off.

Total gasoline exports from Northwest European refiners averaged 1.2 million b/d in October, with November exports down at 866,000 b/d, according to data from commodity tracker Kpler.

On the USAC, PBF said it would idle the smaller crude unit at its Paulsboro, New Jersey, plant, along with the coker and the FCCU, taking an additional 85,000 b/d of crude processing capacity off the market.

Instead, PBF will increase rates at the Delaware City, Delaware, refinery located 30 miles to the south which will be used to process intermediates from Paulsboro.

Pulling from storage

As refiners have tempered their rates, demand has been rising while new cases of coronavirus leveled off during the summer months, where warmer weather allowed for outdoor dining and other activities.

Energy Information Administration data showed that third quarter US demand for gasoline, diesel and jet relative to the second quarter rose 25%, 7% and 57% as coronavirus cases started to level off on the USAC and parts of Europe.

So far in November, US gasoline inventories are within the 5-year range while diesel inventories are trending down with agricultural demand and colder weather.

Globally, refined product stocks held in storage have fallen from April's high, standing at 41 million barrels at the end of October, Kpler data showed. This is almost 52% higher than the four-year average of 27 million barrels.

But as lockdowns return to Europe, recent data shows gasoline stocks in the oil hub of Amsterdam-Rotterdam-Antwerp are rising, up 15% week-on-week for the week ended Nov. 12, according to Insights Global.

Stocks of refined products in floating storage are also inching higher, at over 10 million barrels in NWE, Kpler data showed. Traders said this is due in part to the emergence of a coronavirus vaccine bolstering forward curves in anticipation of a demand recovery in late 2021.

US gasoline demand has been "relatively stagnant", said analyst Alan Struth Nov. 12 on S&P Global Platts Analytics weekly coronavirus webinar, but could be "under review with new lockdowns.

Platts Analytics does not see US return to 2019 oil demand levels until 2022, with 2020 demand down 2.4 million b/d from 2019 levels, and 2021 demand expected to rise by 1.8% million b/d from 2020.