Most US refining margins moved higher for the week ended July 21 as global demand for US gasoline and diesel remains strong, an analysis from S&P Global Commodity Insights showed July 24.
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US refineries are finishing their ramp-up to full rates following a heavier-than-normal maintenance season, eclipsing restarts from around the globe. With ongoing refinery downtime in other regions like Latin America and Asia expected to continue through August, export demand for US refined products is expected to stay robust.
As of July 24, US exports of clean products in the month is averaging 83.45 million barrels, or 2.692 million b/d, marking the highest export volumes since October 2018, according to Kpler data.
USGC margins buoyed by export demand
US Gulf Coast refiners, where most US refined product exports originate, were the main beneficiary of the strong global demand. Cracking margins for local crude WTI MEH averaged $18.21/b for the week ended July 21, a gain of $2.66/b from the week earlier
USGC coking margins for Colombian Castilla crude averaged $12.70/b for the week ended July 21, up from $10.55/b the week earlier.
Weaker local demand for the Colombian crude from planned work at a key refinery increased crude availability, and refinery downtime increased the need for imports to meet local demand to make up for lost product.
US diesel flows to Brazil to top Russian volumes
In Brazil, S&P Global expects 2023 crude runs to drop about 2% from 2022 to 1.9 million b/d, or 20,000 b/d lower than the year earlier.
Brazil has been a traditional destination for USGC refined products due to its proximity to USGC refineries.
But since February, US refiners have faced increased competition from an influx of well-priced Russian refined product barrels, which peaked in April at 188,000 b/d, Kpler data shows
So far in July, Kpler data shows Russian exports of ULSD ex-Primorsk are averaging 138,000 b/d, with US ULSD exports of USGC trailing at 100,000 b/d.
However, in August, US exports are seen reasserting their export lead in Brazil, overtaking Russia with 54,000 b/d of ULSD fixed as of July 24, compared with 44,000 b/d of Russian diesel.
Distillate demand rising
In total, S&P Global Commodities at Sea data shows US distillate exports averaging 1.6 million b/d the week ended July 21, up from the EIA's 1.4 million b/d for the week ended July 14, with an increase in barrels moving to Europe. The diesel arbitrage from the US Gulf Coast to Northwest Europe and the Mediterranean is marginally open, according to S&P Global data.
Diesel exports are seen headed to Europe as well as into Caribbean storage, where US imports have swelled, pushing up tanker rates.
US clean product exports to the Caribbean are averaging 500,000 b/d so far in July, Kpler data shows, the highest since 521,000 b/d in September 2022.
As a result, the price for a clean medium range tanker between the US Gulf Coast and the Caribbean averaged $22.236/mt for the week ended June 21, up from the $18.884/mt for the week ended July 14, according to shipping data assessed by Platts, a unit of S&P Global.
Tanker rates for MR vessels between the USGC to both the UK and the Mediterranean are also on the rise, gaining over $10/mt week over week to average $36.074/mt and $38.77/mt, respectively, for the week ended July 21.
USWC margins lag as exports slow
The US West Coast export center was the exception to a weekly tick-up in margins. Margins there dipped slightly in line with fewer clean product exports for the week, which were 100,000 b/d below the four-week average of 146,000 b/d.
USWC coking margins for Basrah Medium averaged $27.30/b for the week ended July 21, down from the $28.58/b the week earlier, according to margin data from S&P Global.
Weakness in USWC margins are likely to be short-lived, however, with Kpler data showing USWC exports are expected to rise to 251,000 b/d for the week ended July 28.