Refinery margin tracker: Weekly global margins tick lower despite increased demand for gasoline, diesel and jet

New York — Global refining margins inched down last week, despite a pick-up in demand for gasoline, diesel and jet, as crude prices rose more than product prices, an analysis from S&P Global Platts showed Monday.

The coravirus recovery is proving to be a bumpy one for refiners, who have been fairly disciplined in cutting back runs following the March demand plunge resulting from stay-at-home orders put in place to control the disease's spread.

Refiners remain mindful of not overwhelming burgeoning demand growth as governments begin to ease restrictions, carefully scrutinizing supply and demand daily when planning daily run rates.

US refiners, faced with stocks of gasoline and distillate stocks above the 5-year average, have seen product prices lag rising crude prices, which are gaining as US crude producers shut in production.

The price of a barrel of WTI crude at the oil hub of Cushing, Oklahoma, averaged $22.32/b for the week ended May 3, compared with the $16.50/b the week ended April 26, more than a 25% price increase, Platts price assessments show.

And crude prices are expected to rise more, supported by further OPEC production cuts, while product demand is seen lagging. Saudi Arabia said Monday it would pump in June 1 million b/d below its 8.492 million b/d quota and 4.8 million b/d less than its April output.

However, a "notable pickup in driving mobility" in the US to about 80% of January norms, which "bodes well for a continuing recovery in US gasoline demand," according to a recent S&P Global Platts Analytics research note.

USGC MARGINS DROP, REFINERS IN HOLDING PATTERN

Besides rising crude prices, refiners have been plagued by gasoline and diesel inventories well above the five-year level, which need to be whittled down before refiners feel confident to restart idled gasoline units.

US Gulf Coast refiners saw a fall-off in margins for the week ended May 8, despite a lifting of regional coronavirus restrictions. WTI MEH cracking margins fell to $2.85/b, compared with the $4.32/b the week earlier, according to S&P Global Platts Analytics margin data.

Despite Texas' reopening from coronavirus restrictions on May 1, USGC CBOB gasoline prices only rose 21% to average 72.12 cents/gal for the week ended May 8, Platts price assessments show. Data shows that while Houston traffic is back to 80% mobility, many drivers are still working off pre-coronavirus gasoline in their tanks.

USGC refinery coking margins also fell. USGC Mars coking margins averaged $1.77/b for the week ended May 8, compared with the $2.36/b the week earlier, Platts Analytics data showed, as the price of Mars rose by 21% week on week and ULSD prices rose only 16%.

However, USGC jet prices rose by 26% week on week, reflecting the "notable uptick in non-commercial aviation to only 12% vs. pre-crisis norms," Platts Analytics said, noting however that "commercial activity continues to lag badly and is down 67% relative to pre-crisis norms."

USWC MARGINS OUTPACE REST OF COMPLEX

Cracking margins on the US West Coast dipped slightly but remain in double digits, as driving mobility in Los Angeles is seen moving up to 65% of pre-crisis levels, Platts Analytics data shows.

Cracking margins for regional benchmark Alaska North Slope averaged $15.05/b for the week ended May 8, compared with the $15.59/b the week earlier.

Regional coking margins trended higher, with Ecuador's Napo crude yielding margins of $9.61/b for the week ended May 8, compared with the $8.86/b the week earlier. However, prices of heavy sour crudes from Latin America – including Napo – are expected to rise on higher Saudi June prices as well as a cutback in Saudi production.

ASIAN DRIVING RECOVERY UNDERWAY

Asian refiners running Saudi crude saw an uptick in margins last week, due to heavily discounted official prices of crude – with differentials ranging from minus $7.40/b to minus $3.65/b for the kingdom's crude for May loadings.

Singapore cracking margins for Arab Light averaged $3.73/b for the week ended May 8, Platts Analytics data showed, compared with the $1.10/b the week earlier. Excluding China, Platts Analytics sees regional driving activity down 45% compared with a January 13 baseline and up from mid-April's peak decline of 52%.

"While the data is not directly reflective of gasoline demand or indeed total driving activity, it is highly consistent with the latest developments in coronavirus lockdown measures," Platts Analytics said.

Over the past two weeks, Asian countries have begun to loosen stay-at-home restrictions aimed to prevent coronavirus spread, including Vietnam, Malaysia, Thailand, New Zealand and Singapore. And Australia is expected to announce relaxing of measures soon, further increasing demand.