Thursday, August 9, 2018

Record US refinery product volumes

Oil Refineries In The Us Map Usrefineries 

In a recent weekly petroleum report, the US Energy Information Administration (EIA) noted that US refineries are running at near-record levels. 
The four-week average of gross domestic refinery inputs surpassed 18 mill barrels per day for the first time since the EIA started publishing this data in 1990. The last time refinery inputs approached 18 mill barrels per day was in the week of 25th August, 2017 - the week before Hurricane Harvey made landfall, Poten & Partners said in a comment.
The US economy is currently running on all cylinders and GDP growth reached an annual rate of 4.1% in the second quarter, which  is driving domestic product demand up, in particular for gasoline and distillate fuel oil, which (combined) count for almost 75% of domestic refinery output.
Exports of refined petroleum products are strong as well. Refined product exports (which includes LPGs and Pet Coke) have more than tripled over the last ten years, from an average of less than 1.8 million b/d in 2008 to 5.5 million b/d in 2018 year-to-date and the upward trend shows no sign of slowing down. Do these increases in activity have a noticeable impact on product tanker employment and rates?
Refinery inputs are seasonal and typically peak in the summer. Refinery maintenance increases in the spring when refiners are retooling their facilities to make summer gasoline. The same happens in the fall when they switch back to winter grades.
For many years, US refining capacity expansions were limited to capacity creep, ie, small increases in distillation capacity due to minor de-bottlenecking within existing facilities (often during maintenance turnarounds).
However, since 2011, US refinery capacity has increased by 862,000 barrels per day, partly due to the commissioning of four small new facilities (mostly condensate splitters) in Texas and one in North Dakota.
Motiva significantly expanded its refinery at Port Arthur and Valero did the same with its Corpus Christi facility. Some idled capacity has been brought back on line as well. In short, US refineries are in good shape, especially those on the Gulf Coast. They have access to surging light tight oil production, as well as abundant Canadian barrels. Due to the ample availability of shale gas, they also enjoy low energy costs.
So, have these positive dynamics for refinery runs and product exports translated into increased demand and higher rates for product tankers? Yes and no. Yes, there is more demand for product tankers to move increasing volumes of products to Europe, Latin America and Asia. However, the rates for product tankers do not reflect these higher levels of activity. Indeed, rates during the first six months of this year have been the lowest since 2014.
Except for the fourth quarter, when rates typically go up, there are no obvious seasonal patterns in this market. Although product tanker rates have been rather disappointing so far this year, that should not come as a big surprise. The product tanker market is a global market and significant deliveries of MRs (the vessel of choice in these trades) during 2014-2016 created significant overcapacity that the markets are still trying to work off.
Projected deliveries for the remainder of this year and 2019 are less than in previous years and if tonne/mile demand continues to grow, the outlook for the product market is rather positive. The shift towards low sulfur bunker fuels in 2020 represents a significant wild card.
This change may create dislocations in the marine fuels markets and therefore additional employment opportunities for product carriers, starting in the second half of 2019. In the US, refinery output is expected to continue to grow faster than domestic demand and the outlook for refined product exports is therefore bullish, Poten & Partners said.

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