Refinery margin tracker: US margins react to weak demand, rising stocks and RINs prices

US margins softened as refiners got ahead of demand by pumping up runs while sentiment for the possibility of some refiner relief from the US Renewable Fuel Standard is undercutting the record high price of RINs, an analysis from S&P Global Platts showed on June 14.

The price of RINs – the renewable credits that obligated parties like refiners need to buy to meet their renewable volume obligation for blending ethanol and biodiesel into their gasoline and diesel under the Environmental Protection Agency’s RFS – had been on the upswing due to uncertainty over 2021 RVOs.

And because RINs are built into US refining margins this resulted in an inflation of US margins versus those in Asia and Europe.

The fall-off June 11 in the RINs price as the market digested the fact the EPA was likely to rejig the RFS – something that refiners like PBF, CVR Energy and HollyFrontier have been calling for – is a positive for most refiners in the long run but one with only a slight impact on last week’s margins.

Weak demand overwhelms rising RINs prices

The price of both D6 ethanol RINs and D4 biodiesel RINs both ended the week at a record high of just under $2/RIN while the RVO – the aggregate cost of RFS compliance for all mandated fuels – also ended the week at record highs averaging 22.80 cents/gal.

While last week’s higher RINs costs provided margin support, the softening of refining margins week-on-week was more a function of stock builds and weakening demand.

US refinery utilization breached the 90% mark for the first time post-pandemic – averaging 91.3% of capacity for the week ended June 4, according to most recent Energy Information Administration data.

This increased total US gasoline inventories for the week ended June 4 by about 7 million barrels to 241 million barrels while showing a drop of 666,000 b/d in demand to 8.48 million b/d.

“The DOEs showed poor domestic demand numbers across the board leading to another large build for clean product inventories,” wrote JP Morgan analyst Phil Gresh in a June 13 research note.

Gresh cited two factors for the poor demand showing – the negative weather impact from a rainy and stormy long Memorial Day weekend curtailed travel and “some multi-week hangover effect of the Colonial Pipeline outage.”

Weak demand, high imports hurt USAC margins

On the US Atlantic Coast, the cracking margin for Arab Light averaged $9.26/b for the week ended June 11, down from 68 cents/b from the $9.94/b the week earlier, according to S&P Global Platts Analytics margin data.

However, the end-week drop off in RINs prices played a supporting role in dragging margins lower. On June 11, Platts assessed D6 ethanol RINs at $1.75/RIN, D4 biodiesel RINs at $1.85/RIN and the RVO at 20.94 cents/gal — well below early-week values.

Stripping out the RIN value, the USAC Arab Light cracking margin averaged $3.71/b for the week ended June 11, compared with the $4.47/b for the week earlier, 76 cents/b lower week on week and more in line with the Arab Light cracking margin for refiners in Northwest Europe.

Platts Analytics showed the NWE Arab Light cracking margin averaged $3.01/b for the week ended June 11, compared with the $3.26/b for the week ended June 4.

And more margin support is seen as gasoline imports into the USAC from NWE are expected to rise to 956,000 b/d for the week ended June 18, compared with the 751,000 b/d exported for the week ended June 11, according to data from commodity tracker Kpler.

Lower exports hurt USGC margins

Complex and sophisticated US Gulf Coast refiners also saw a slight drop in margins week-on-week, with WTI MEH cracking margins down 36 cents/b to $13.01/b for the week ended June 11.

This is due in part to a fall-off in exports, which fell to 981,000 b/d for the week ended June 11 from the 1.257 million b/d exported the week earlier, according to Kpler.

The majority of exports for the week ended June 11 – 889,000 b/d — were ULSD heading to Latin America, NWE and Mexico, Kpler showed.

Weaker exports helped push USGC Mars coking margins to $11.51/b for the week ended June 11, down from the $11.74/b the week earlier, Platts Analytics data showed.

Diesel demand also weakened, down 400,000 b/d to 3.4 million b/d, while inventories rose 4.4 million barrels to 137.2 million barrels for the week ended June 4, according to EIA data.

And demand for jet fuel fell for the week ended June 4, EIA data showed, down 409,000 b/d to just over 1 million b/d – the lowest level since March.

But that is expected to pick up with an increase in air travelers. According to the Transportation Security Administration, over 2 million passengers were screened on June 11 – the highest volume since March 2020 before coronavirus lockdowns were put into force.

“This milestone represents 74% of the travel volume versus the same day in 2019 and 1.5 million more travelers than the same day in 2020,” said a June 12 statement released by the agency.
Source: Platts

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