The decision by Saudi Arabia to voluntarily cut 1 million b/d of crude production in February and March on top of its OPEC output quota propelled crude prices higher, while the reinstitution of lockdowns to prevent the pandemic’s spread stifled some demand growth.
However, the rollout of coronavirus vaccines provided some hope increased personal mobility will aid demand, despite the low number of vaccinations, with about 1.5% of the US population vaccinated.
Supply also remains moderated by record-high refinery downtime, estimated by S&P Global Platts Analytics to be 15.976 million b/d in the first quarter 2021 compared with the 9.708 million b/d in the first quarter of 2020. These forecasted outages include announced turnarounds as well as estimated unplanned and unannounced downtime and do not include the 1.5 million b/d of refinery closures in 2020.
Zeroing in on the US Gulf Coast as a proxy for global refining margins, weekly average cracking margins for benchmark crudes WTI MEH and Light Louisiana Sweet dropped as outright crude prices rose over 4% week on week, breaching the $50/b mark and pushing down margins.
WTI MEH cracking margins averaged $7.30/b for the week ended Jan. 8, compared with $7.54/b the week earlier, according to S&P Global Platts Analytics data. LLS cracking margins averaged $6.76/b for the week ended Jan. 8, versus the prior week’s $7.04/b.
However, by Friday, Jan. 8, cracking margins began to recover as gasoline prices rose.
USGC waterborne CBOB gained 17 cents/gal during the week and was assessed by Platts on Jan. 8 at $1.5248/gal. The rise, which raised Jan. 8 cracking margins for WTI MEH to $8.13/b and LLS to $7.59/b, was due in part to scheduling day on the Colonial Pipeline, which pulls gasoline from USGC refineries to the US Atlantic coast, and exacerbated by production issues at Valero’s Houston refinery.
USGC coking margins also showed a week-on-week decline but rebounded with an end-of-week rally. Maya USGC coking margins averaged $4.68/b for the week ended Jan. 8, down from $5.79/b the week earlier. However, on Friday, Jan. 8, the Maya USGC coking margin rose to $5.41/b as ULSD prices gained 12 cents/gal over the week to $1.5395/gal, as assessed by Platts.
The rise was due in part to expectations of increased ULSD exports from the USGC, which are expected to rise by 138,000 b/d week on week for the week ended Jan. 15 to 381,000 b/d, according to Kpler commodity tracking data.
ULSD export prices lagged those of USGC waterborne prices, although both gained to end the week higher. ULSD export prices ended the week at $1.36933/gal, while ULSD domestic prices averaged $1.5395/gal as assessed by Platts.