High demand drives strong 2Q for US refiners

OREANDA-NEWS. July 27, 2015. US independent refiners next week will show just how much unexpectedly strong domestic gasoline demand boosted second quarter profits.

Record highway mileage signaled the strongest gasoline consumption since 2007. Domestic crude prices that averaged 44pc lower than the same quarter of 2014 helped cut national retail gasoline prices on average by more than \\$1/USG through the quarter, according to Energy Information Administration (EIA) data. Refiners crested 9mn b/d of gasoline supply early in 2015 and often in the second quarter, holding above the ten-year seasonal average for all but five weeks of the period.

Margins soared to record levels in California, where operational issues that emerged during the first quarter intensified through June. Southern California gasoline margins averaged more than double the margins from the same quarter of 2014, according to Argus assessments. The benchmark Alaskan North Slope 3-2-1 crack spread averaged \\$27.96/bl during the quarter, up from \\$12.96/bl in 2014.

ExxonMobil's 250,000 b/d Torrance refinery, the single largest gasoline producer in southern California, capped a number of ongoing operational problems in the state. The major has offered no timeline for the return of equipment damaged in a February explosion that helps the facility produce 15pc of the southern California gasoline supply.

Conditions were a boon for Valero's California plants, which operated without much interruption, and for more distant refiners such as Western Refining and HollyFrontier able to reach nearby Arizona markets. Second quarter gasoline shipments on Kinder Morgan's west coast pipeline systems, which include connections from west Texas and Southern California to Arizona, increased by 6pc from the previous year to 834,000 b/d.

National gasoline demand has remained strong in the early third quarter and low prices should sustain that demand through August to the end of the summer driving season. Ultra-low sulfur diesel (ULSD) inventories are at historic highs heading into the fall harvest, that fuel's US demand season. On-highway prices for ULSD fell this month below retail gasoline prices for the first time in six years, according to the EIA. But low crude prices expected to persist through the end of 2015 should maintain a strong year for US independent refiners.

Large independent refiners begin reporting earnings next week, beginning with PBF Energy on 30 July.