US refiners likely to report tepid 3Q
OREANDA-NEWS. Thin margins, swollen inventories and towering compliance costs will keep expectations low as US independent refiners begin reporting profits in earnest next week for the three months ended 30 September.
US refiners had plenty of opportunities to sell their late summer production. Implied gasoline demand averaged a record 9.6mn b/d during the quarter, according to the Energy Information Administration (EIA). Combined exports of finished gasoline and distillates averaged 1.7mn b/d in over the same period — the highest third quarter volume since the agency began tracking data in 2010.
But the industry smothered that surge in demand. Gasoline inventories averaged 233mn bl in the third quarter — 8pc higher than in 2015 and 10pc higher than the ten-year average.
And despite ample opportunities for fuel blending and generation of credits needed to comply with federal biofuels mandates, prices for those markers, called renewable identification numbers (RINs), soared to more than double their cost in the same quarter last year. Prices for RINs generated from conventional ethanol blending averaged 89.76?/RIN for the quarter, up from $38.71?/RIN in 2015, based on Argus assessments.
The increase will hit inland refiners lacking blending capacity especially hard. Delta Air Lines reported costs associated with complying with the mandates at its 185,000 b/d refinery in Trainer, Pennsylvania, increased to $48mn during the quarter — almost three times the company's expenses for the third quarter of 2015. Trainer sells off its non-jet fuel production and lacks the ability to blend fuels. Nearby, privately-held Philadelphia Energy Solutions and
publicly-traded US midcontinent refiners HollyFrontier and CVR Energy highlighted the costs earlier this year, when prices averaged 10?/RIN lower.
Delta last week blamed thinning margins for a $43mn loss during the quarter at Trainer. The airline expects the facility to lose roughly $100mn this year. US Atlantic coast crack spreads joined a contraction in every region for the difference between crude costs and what refiners could make on their products. US Gulf coast sour spreads proved the most resilient, falling just 22pc compared to the third quarter last year, based on Argus assessments.