PBF Energy plans higher Q2 runs on rising demand, lower stocks

New York — PBF Energy expects higher second quarter refinery utilization than in the previous two quarters as market conditions improve, with stronger demand and refined product inventory levels at or near five-year average levels.

"While we are not out of the woods yet, our business saw a strong recovery during the first quarter," CEO Tom Nimbley said on a Q1 earnings call April 29. "The vaccine rollouts have picked up and people are starting to come out from their respective COVID and winter hibernations."

Nimbley said PBF plans to run about 25% more barrels in Q2 2021 than in Q4 2020 and 15% more than in Q1 2021. PBF's planned Q2 throughput is expected to average 855,000 b/d, compared with Q1 throughput of 745,500 b/d and Q4 2020 throughput of 677,300 b/d.

"Aside from the catastrophic personal impacts of Winter Story Uri, the storm continued to clean up and balancing of inventory levels," he said, adding that cracks responded as a result of the storm but operational discipline on the part of the refiners resulted in lower inventories rather than higher utilization.

Move up maintenance as markets improve

Improving margins supported PBF's election to move up maintenance to the second quarter at its East Coast system, which consists of the Delaware City, Delaware, and Paulsboro, New Jersey, plants, with the downtime included in the second quarter guidance, said COO Erik Young, in order to capture rising margins.

During the second half of the year, work is planned at Delaware City and the Chalmette, Louisiana, plant as well as its two California plants in Torrance and Martinez, Young said. He gave no time frame or scope of the work being performed.

Still on the table is a renewable diesel project being considered for the Chalmette refinery. Using an idled hydrocracker and a plentiful supply of hydrogen, PBF is considering a 20,000 b/d renewable diesel plant that could start up 12 months after the final investment decision is made, which will be in the next several months.

The plant is well-located at the mouth of the Mississippi for feedstock supply with access to water, rail and truck logistics, as well as being able to supply renewable diesel to its two California plants, allowing it to benefit from both federal and state credits.

Wider light-heavy differentials ahead

Higher refinery runs will increase the call on crude for producers, which should have a positive impact on differentials, Nimbley said.

"We are seeing the green shoots of this effect with discounts widening modestly for sour crude oil as incremental barrels are coming from the Middle East ... We expect this trend to continue as demand improves," he said.

Nimbley added that domestic gasoline demand is about 95% of normal, distillate demand has fully recovered and is about 5% above historical levels, with jet lagging at 75% of normal levels, as coronavirus-related international travel remains low as other countries have faced a bumpier vaccine rollout than the US.

"Demand begets utilization. Utilization begets improved cracks, and, most importantly, the call on OPEC+, Nimbley said., adding, "the incremental barrel which is coming to market is obviously a medium, heavy more sour barrel, which we believe will regard complexity and will result in the widening of light heavy spreads."

He noted Brent has moved out to where Maya is more than $6 under Brent, that's $1.50 more than it was in the first part of 2021.

California positivity

California is the bright spot for PBF in the near term as refinery margins there surpass other regions. PBF said it has seen a rise in gasoline demand on the US West Coast to about 97% of normal, and its two refineries are running at 85% of capacity, supporting stronger regions.

"We're bullish on gasoline right now," Nimbley said, noting the sentiment is "primarily about mobility and the state opening up on June 15."

California's diesel demand keeps rising, with the major port of Long Beach posting record cargo demand at 40-year highs, "Which means there is diesel demand when you unload those containers and transfer across the whole country," Nimbley said.

USWC cracking margins for benchmark Alaska North Slope are averaging $16.01/b so far in the second quarter, compared with the first quarter's average of $13.15/b. Arab Medium coking margins are averaging $17.59/b in Q2, compared with $14.04/b in Q1, according to S&P Global Platts Margin data.

"While these [USWC] tailwinds will partially reverse based on guidance of greater [USWC] headwinds in 2Q to 4Q, management's tone on the refining macro was much improved, leading to a material increase in 2Q utilization guidance," according to Phil Gresh, of JP Morgan.

PBF's second USWC throughput guidance, which consists of its two California refineries, is an average of 300,000 b/d, compared with the first quarter's throughput of 231,700 b/d.