Swelling US products stockpiles will not deliver another year of profit-squashing oversupply, independent refiner Valero said today on its fourth quarter earnings call.
Abundant summer gasoline production and weak seasonal heating demand left US refiners piling up steep product inventories last winter that cut into profits for much of the year.Stockpiles so far this year have climbed even higher, according to the Energy Information Administration (EIA).
Refinery utilization rates remain too high, Valero senior vice president of supply Gary Simmons said. But colder winter weather and growing winter — rather than summer — inventories should drain product tanks and force run cuts for other refiners this year, the company said.
"As those barrels clear it will bring the market down and you will see economic run cuts and lower utilization while those barrels clear before you actually get into summer driving season," Simmons said.
US total gasoline inventories have increased by more than 5pc since the beginning of the year, to 253mn bl in the week ended 20 January. Stored volumes were at their highest since late February last year and 8.7pc higher than the ten-year average for the week. Atlantic coast volumes, in particular, are unusually high, at 9.3pc more than the same week of 2016.
Implied EIA gasoline demand has meanwhile lagged-year ago levels. Weekly volumes, which offer a more current but less reliable gauge of domestic consumption, sank this month to their lowest levels in almost three years and have fallen to 6pc below the ten-year average.
Heavy fog that slowed product exports out of Houston, Texas, may have contributed to some of the bearish data, Simmons said. Valero exported 359,000 b/d of gasoline and distillates during the fourth quarter.
And most of the stored product appeared to meet easier, winter-grade specifications, he said. Sellers will need to clear that out to make room for the tighter specifications of summer-grade gasoline.
The EIA does not break down stored volumes by specification.
Valero still expects strong export demand for its products in 2017. Mexico's vow to restore its refinery utilization from 2016's record lows will take time to accomplish, Valero said. There was sufficient Latin American demand elsewhere to take any products Mexico replaces, the company said.
US demand should also hold steady, Simmons said.
"I do think that part of this is utilization rates are just too high and we are producing more gasoline and diesel than the market can absorb," Simmons said.
But those were adjustments for someone else to make, chief executive Joe Gorder said.
"We do not have any strong interest in balancing the market ourselves," he said.
| Valero expected Q1 throughputs | |||
| Region | 2017 estimate ('000 b/d) | 2016 actual | |
| US Gulf coast | 1,630-1,680 | 1,693 | |
| US midcontinent | 415-435 | 455 | |
| US west coast | 195-215 | 259 | |
| North Atlantic | 400-450 | 472 | |
| - Valero | |||
| Valero Fourth Quarter | ||||||
| Q4 2016 | Q4 2015 | FY 2016 | FY 2015 | |||
| Refining throughput ('000 b/d) | ||||||
| US Gulf coast | 1,653 | 1,657 | -0% | 1,653 | 1,592 | 4% |
| US Midcontinent | 447 | 449 | -0% | 452 | 447 | 1% |
| North Atlantic | 483 | 503 | -4% | 483 | 494 | -2% |
| US West coast | 270 | 245 | 10% | 267 | 262 | 2% |
| Throughput margin per barrel | ||||||
| US Gulf coast | _($* 8.44 | _($* 10.70 | -21% | _($* 8.61 | _($* 12.27 | -30% |
| US Midcontinent | _($* 6.85 | _($* 10.34 | -34% | _($* 7.89 | _($* 14.09 | -44% |
| North Atlantic | _($* 8.75 | _($* 10.09 | -13% | _($* 7.95 | _($* 12.06 | -34% |
| US West coast | _($* 8.15 | _($* 14.62 | -44% | _($* 10.30 | _($* 17.00 | -39% |
| Valero | ||||||
