REFINERY MARGIN TRACKER: Refinery margins fall as seasonal work ends; omicron remains an unknown

Global refining margins showed a weaker trend for the week ended Nov. 26 as refiners finished up seasonal plant maintenance and restarted their plants, but by end week, concerns about the spread of the omicron strain of the coronavirus and possible impact on demand gained traction, an analysis from S&P Global Platts showed Nov. 29.

The omicron variant of the coronavirus, initially identified in South Africa, has spread with cases reported in Scotland and Portugal. Countries including Japan, Israel and Morocco began shutting their borders to foreign visitors, even though the actual threat from the mutated virus remained unknown, according to the World Health Organization.

"It is too early to have an impact on the mobility side. Just something to be watched," said Alan Struth, analyst with S&P Global Platts Analytics.

According to S&P Global Platts Analytics estimates, global crude distillation capacity offline in November was pegged at 10.968 million b/d, dropping to 9.176 million b/d in December which is expected to remain stable.

According to Platts Analytics, most idled refinery units have been restarted in both Europe and the US, with one major exception: TotalEnergies 220,000 b/d Donges, France, refinery which is completely shut and expected to be down until March.

Increased refined product supply softened margins for Northwest European refineries, with Forties cracking margins averaging $3.43/b for the week ended Nov. 26, compared with the $5.41/b the week earlier, according to S&P Global Platts Analytics refining margins.

In the Mediterranean, CPC blend cracking margins slipped minimally to average $6.57/b for the week ended Nov. 26, compared with the $6.58/b the week earlier.

US coastal margins weaken

US Atlantic Coast and US West Coast margins softened while Midwest and US Gulf Coast margins rose.

USAC cracking margins for Urals crude averaged $8.58/b for the week ended Nov. 26, down from the $8.81/b the week earlier as local refinery restarts increased product supply, according to Platts Analytics margin data.

Total USAC gasoline imports increased for the week ended Nov. 26 to 523,000 b/d from the 318,000 b/d the week earlier, buttressed by the return from planned work at the Irving refinery in Saint John, New Brunswick, according to commodity tracking data from Kpler.

USWC margins also softened, with Arab Heavy coking margins dropping to $22.91/b for the week ended Nov. 26 from the $24.38/b the week earlier.

However, the shutdown of Canada's Trans Mountain pipeline due to flooding in British Columbia is creating crude supply gaps for over 650,000 b/d of Washington state refinery capacity. Roughly 90% or about 214,000 b/d of the crude transported on the 330,000 b/d pipeline is exported to their five plants.

Midwest outages pull up USGC margins

US Midwest margins ticked higher for the week ended Nov. 26, with WTI ex-Cushing cracking margins averaging $10.99/b, up from the $9.87/b the week earlier. A spate of planned and unplanned outages helped support higher margins, including a fire in one of the two crude units at PBF's Toledo refinery on Nov. 23 which is expected to keep the refinery at reduced rates for two weeks.

US Gulf Coast margins also rose, aided by the knock-on effect of lower Midwest supply pulling barrels north. USGC cracking margins for WTI MEH averaged $13.25/b for the week ended Nov. 26, up from the $11.77/b the week earlier as gasoline demand strengthened ahead of the Thanksgiving Day holiday.

According to Patrick De Haan of Gasbuddy.com, gasoline demand on Nov. 28 was the highest Sunday demand seen in 2021, 8.3% higher than that of Nov. 21 and 7.6% higher than the average of the last four Sundays.

Logical steps

If there is a return to lockdowns to prevent the spread of the new strain of coronavirus, refiners are likely to return to the logical steps taken through the pandemic, which is first cutting runs, then idling a crude unit if the plant has more than one, and alternating restart and idling of crude units on a monthly or weekly basis.

"That has been the strategy since beginning of coronavirus," said Joe Pezzino, a refining analyst with S&P Platts Analytics.

While the impact of omicron on refined product demand is not yet clear, refiners are ready to run normally in December, due in part to below-average refined product stocks.

"Crude for December runs is already committed if not already at the tanks," said Sergio Baron, Platts Analytics market analyst. "Nobody will save crude for later runs with the market in backwardation. So the December runs will happen as planned."