Refinery margin tracker: Global margins strengthen as crude prices drop on coronavirus impact

Global refining margins were generally stronger across the board last week, with crude prices tumbling on coronavirus-related demand cuts in China creating a knock-on effect on global supply-and-demand patterns, an analysis from S&P Global Platts showed Monday.

"After a week of tracking the coronavirus outbreak and its aftermath, we detect a broadening trend toward stabilization, although the situation remains serious, especially in China," S&P Global Platts Analytics wrote in a research note

While the impact of the coronavirus remains strong in China, its effect outside the country appears to abating. Refining margins strengthened as refined product price declines were outpaced by falling crude prices. Refined product demand in China was stymied by declines in transport activity, creating product builds in regional markets and redirecting crude flows.

Singapore cracking margins for Dubai rose to average $1.32/b for the week ended February 7, up from the minus 10 cents/b the week earlier, Platts Analytics data showed.

However, despite gaining week-on-week, Chinese refining margins stayed firmly in negative territory, with Arab Medium cracking margins averaging minus $1.84/b, up from the minus $3.98/b the week earlier.

The number of Chinese transport passengers for all venues were down 30%-40%, according to data released by the Chinese Minister of Transport. But the number of Chinese workers who return to work Monday could signal normalization or further disruption, Platts Analytics noted.

This weaker Chinese demand is also causing inventories to build outside of the country. Refined product stocks held in Fujairah rose 12% week on week to reach 24.252 million barrels, the highest level since November 18, according to data released last week by the Fujairah Oil Industry Zone.

Singapore stocks also rose, with gasoline and light distillates up 3% to 7.332 million barrels, the most since August 2018, while middle distillates rose 1% to 4.058 million barrels, according to Enterprise Singapore data.

CORONAVIRUS RIPPLE EFFECT

Refining margins in the Amsterdam-Rotterdam-Antwerp region were stronger, with Urals cracking margins averaging $6.01/b, up from the $4.88/b the week earlier. Part of the strength was due to regional refineries beginning seasonal turnarounds, lowering demand for crude and reducing product inventories.

Platts Analytics calculates 411,000 b/d of refinery capacity in Northwest Europe is offline in February, with outages rising to 688,000 b/d in March.

The lower refinery output cut into inventories. ARA diesel and gasoil stocks fell 3% week on week, to 2.470 million mt last week, or 18.1 million barrels, according to Insights Global data, while gasoline stocks rose 10% to 1.12 million mt, or 9.46 million barrels.

Across the Atlantic Ocean, the unplanned outage of the 145,000-b/d gasoline-making fluid catalytic cracking at Phillips 66's Bayway refinery in Linden, New Jersey, opened the arb for greater flows of gasoline from northwest Europe to the US Atlantic Coast, which will divert some gasoline stocks held in ARA. The unit is expected to be offline for a month.

The outage also helped US Atlantic Coast cracking margins trended higher, with the Bonny Light cracking margin averaging $5.38/b for the week ended February 7, up from the $3.42/b the week earlier.

A rebound in gasoline exports from the US Gulf Coast supported margins there, as more gasoline and diesel was heading to Latin America. The cracking margin for refiners running barrels of WTI from the Magellan East Houston terminal averaged $8.54/b, compared with the $6.52/b the week earlier. US exports rose to 986,000 b/d for the week ended January 31, up from the 649,000 b/d the week earlier, US Energy Information Administration data showed.

In the US Midwest market, margins gained as planned work took 310,000 b/d of refinery capacity offline for week ended February 7. The US Midwest, WTI Cushing cracking margins rose to $10.33/b from $8.55/b the week earlier.

While outright margins on the US West Coast continue to top all other regions, they showed a slight downtick week on week. The cracking margin for Alaska North Slope averaged $19.08/b for the week ended February 7, compared with the $19.09/b the week earlier.

Front-month ICE Brent prices averaged $54.62/b for the week, down $4.40/b from the week earlier, and the largest weekly drop since December 2014.

The NYMEX front-month crude contract averaged $50.35/b for the week ended February 7, down $2.38/b from the week earlier.