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US Midwest refiners expected to keep runs low as Enbridge Line 5 partially returns

Highlights

Refinery runs set to fall as refiners pare back runs

Margins rise as product glut declines

US Midwest and Canada refiners are expected to keep crude runs low even as Enbridge has gotten the judicial go-ahead to restart one segment of its Line 5 crude pipeline.

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Late in the day on July 1, Enbridge was allowed to reopen part of the line after a Michigan judge amended an earlier temporary restraining order. The eastern segment of the line remained closed for repair.

No timeline for restart was given.

Enbridge on June 25 was told by a Michigan judge to shut both Line 5 East and Line 5 West Lines after discovery of a structural problem, reducing supply of crude from Western Canada to refineries in Ohio, Michigan and Ontario.

The shutdown cut 400,000 b/d of crude coming down Line 5, which runs under the Mackinac Straits connects to Enbridge's Mainline at Superior, Wisconsin. The line continues east to Sarnia, Ontario, where connects to southerly lines which feed crude to US refineries in Ohio and Michigan.

Low demand environment

But most analysts do not expect much impact from the restart in a low crude demand environment caused by the coronavirus pandemic.

Midwestern US refineries have already cut rates, operating at 81.5% of capacity for the week ended June 26, down from the 81.9% the week earlier, most recent Energy Information Administration data shows.

Crude runs in the US Midwest dropped by about 16,000 b/d to 3.402 million b/d in the most recent week.

And refinery runs are expected to fall further this week.

S&P Global Platts Analytics expects Midwestern crude capacity offline to rise from 700,000 b/d for the week ended June 26 to 844,000 b/d for the week ended July 3.

Some US refiners dependent on Line 5 for crude supply are not greatly affected.

PBF is not running the crude unit at its 170,000 b/d Toledo, Ohio, refinery, according to market sources, limiting its demand for crude coming off the line. A company spokesman was not immediately available to comment.

And Marathon Petroleum's 140,000 b/d Detroit, Michigan, refinery depends on Line 5 for about 2% to 3% of its crude supply, according to Manav Gupta, analyst at Credit-Suisse in a recent research note.

A Marathon representative was not immediately available for comment. .

A representative from Husky Energy also was not immediately available to comment on what impact the outage had on to the 155,000 b/d refinery jointly owned with BP in Lima, Ohio, also served by Line 5.

However, in late June a Husky Energy executive said it had increased rates to around 140,000 b/d at its solely owned 177,000 b/d Lima refinery which is supplied by other crude sources.

North of the border

Canadian refiners, particularly the three main plants in the Sarnia, Ontario, have also cut runs, reducing their demand for crude.

For the week ended June 16, the most recent data available, Ontario refinery runs fell to 295,000 b/d, according to data from Canada's energy regulator, which puts refinery utilization at 72% for the province.

The provincial plants most affected are in Sarnia, just north of Detroit, where there is 280,000 b/d of refining. This includes Shell Canada's 75,000 b/d plant, Imperial Oil's 120,000 b/d plant, and Suncor's 75,000 b/d plant.

Representatives from Shell Canada, Imperial and Suncor were not immediately available for comment.

However, news of the reopening of the western leg of the line was considered positive for those refiners.

"While the East leg remains shut, the news is positive for all Canadian Integrated names especially IMO [Imperial] and SU [Suncor]," wrote Gupta in late July 1 research note.

Margins pick up

A glut of refined products inventories had weighed on refining margins in March, April and May, at the peak of the coronavirus travel restrictions, with some margins turning negative in April. But margins are now recovering as refiners cut runs, narrowing the supply surplus.

So far for the week ended July 3, the cracking margin for Bakken ex Clearbrook is averaging $8.27/b, compared with the $8.10/b for the week ended June 26, according to Platts Analytics.

Syncrude cracking margins in the US Midwest are averaging $10.44/b so far this week, compared with the $9.46/b the week earlier.

Midwest diesel inventories at 33.14 million barrels the week ending June 26 were 9.5% above the five-year average, down from a 17% surplus in early June, EIA data shows. Midwest gasoline stocks at 52.47 million barrels were at a 1.8% surplus to the five-year average, down from a 10% surplus in mid-April.