REFINERY MARGIN TRACKER: California demand drives USWC margins higher

Anticipation of California's post-coronavirus pandemic reopening combined with lower regional refinery runs and inventories are providing strong support for US West Coast refining margins, according to a May 3 analysis by S&P Global Platts.

"California has announced opening in mid-June, which should support demand," said Brian Mandell, head of Phillips 66's commercial division, on the company's April 30 first-quarter results call, referring to the state's rising gasoline demand once mobility returns.

"We are seeing a correlation with the increase in vaccines and the increase in vehicle miles traveled and demand for gasoline," he added.

US West Coast cracking margins for Alaska North Slope averaged $17.12/b for the week ended April 30, compared with the $15.93/b the week earlier, according to margin data from S&P Global Platts Analytics.

California refinery run rates pick up

Refiner PBF, which owns two California refineries, is also bullish on gasoline demand in the Golden State.

PBF CEO Tom Nimbley said on the company's April 29 first-quarter results call that they are seeing California's gasoline demand at 97% of pre-coronavirus pandemic levels.

"So clearly, we've seen the utilization come up," he added, noting that both PBF's 160,000 b/d Torrance and 156,400 b/d Martinez plants are running at about 85% of capacity.

In anticipation of higher demand, California's refineries pumped up volumes of crude processed by 4.2% week on week to 10.63 million barrels for the week ended April 23, according to the California Energy Commission Weekly Fuels Watch Report.

This works out to about 1.52 million b/d, 4.2% higher than the week earlier, or about an 80% utilization rate at the state's 13 operating refineries.

California crude input to refineries picked up but refiners focused on making non-California grades, despite lower inventories of CARBOB and CARB diesel, due in part to better differentials.

Production of non-California gasoline and diesel rose 38.7% and 112.2%, respectively, dwarfing that of CARBOB and CARB diesel production, which fell 1.1% and 11.6%, respectively.

This is despite lower inventories of both CARBOB and CARB diesel inventories, down 3.7% and 6.7% week on week, to 5.9 million barrels and 2.3 million barrels, respectively, for the week ended April 23.

Diesel demand eclipses prepandemic levels

For the past two weeks, ULSD assessed by Platts in Los Angeles has been holding a 50 cent/gal premium over California's CARB diesel, helping support stronger coking margins, which are topping $20/b for some grades.

USWC coking margins for Arab Light and Vasconia averaged $21.34/b and $20.38 for the week ended April 23, the highest levels since mid-February 2020 before widespread lockdowns to contain the spread of coronavirus decimated demand for transportation fuels.

PBF's CEO Nimbley said container traffic at the Port of Long Beach, the second busiest in the US, reached a "40-year all-time high" which provided support for distillates and diesel.

According to Port of Long Beach statistics, volumes of TEUs – or the 20-foot equivalent units shipping container metric – is 31.5% higher for the first quarter of 2021 than 2020.

March 2021 volumes – the latest monthly data available – shows a total year-on-year TEU increase of 62.3%, with volumes of imported containers up 74% compared with last year's numbers.

"So there's a ton of container ship traffic out there," Nimbley said.

"Obviously, that means there is diesel demand as you unload those containers and then transport the material that was in them across the entire country," he added, referring to increased diesel demand by the trucking industry.

And while domestic air travel is on the rebound, international air travel from the USWC is recovering more slowly, particularly out of Asian travel hubs of Seattle, Los Angeles and San Francisco.

"Jet is moving grudgingly," Nimbley said.