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Marathon sees strong winter for refiners

26 Oct 2017, 7.30 pm GMT

Marathon sees strong winter for refiners

Houston, 26 October (Argus) — Strong export demand and hurricane-cleared product inventories will set up a bullish close of the year for US refiners, Marathon Petroleum chief executive Gary Heminger said today.

The combination put the industry in a better fourth quarter position than at least the past two years, he said on a quarterly earnings call.

"Days of supply are really strong, should be really strong for inventory across both gasoline and distillate and, I think, should continue to show strength finishing up the fourth quarter," Heminger said.

US days of gasoline supply, a measure of inventories against estimated consumption, fell to 23.3 days last week, according to the Energy Information Administration. The volume was 6pc lower than the same week last year. Distillates days of supply fell by 6.4pc from the previous week to 33.9 days, a 10pc decrease compared to 2016.

Distillate stockpiles in particular sat unseasonably low. Demand lifts in the winter as northeastern states use ultra-low sulfur diesel (ULSD) for heating oil. But inventories of the fuel were at their lowest levels since the end of the 2015 winter last week, and were at their lowest since June 2015 on the Atlantic coast.

An unusually warm winter last year limited distillate demand and turned refiners to gasoline production earlier than normal. Higher gasoline production meant lower product margins heading into spring.

Temperatures will be 1.7pc warmer than normal between October and March, but 12.4pc cooler than last year, according to the National Oceanic and Atmospheric Administration. The number of days needing heating in the northeast, the center of US heating oil demand, would increase by 6.1pc compared to last year.

Exports demand helped steady fourth quarter consumption, the company said. Marathon Petroleum averaged 331,000 b/d of gasoline and diesel exports from the US Gulf coast during the third quarter.

Marathon Petroleum continued to prefer light, sweet crude in its system as narrow discounts for sour feedstocks persisted. Sour crudes made up 57pc of its 1.8mn b/d throughput for the third quarter, the lowest volume of those crudes since late 2015. The US Gulf coast sour benchmark Mars averaged a record low $3.20/bl discount to Light Louisiana Sweet crudes during the quarter, based on Argus assessments.

But discounts for heavy Canadian crude that Marathon runs in its midcontinent and US Gulf coast system would widen through the end of the year and into 2018 as more production comes online. Operational issues this year limited heavy production. Suncor said today it expected oil sands output to rise steadily through the end of 2018.

The broader medium sour crude market would remain narrow until inventory levels and prices satisfy Opec, Marathon senior vice president of supply Michael Palmer said.

"That's happening — inventories are coming down," Palmer said. "We would expect to see continued pressure on the sour (differentials) until Opec puts more crude in the market."


Marathon Petroleum 3Q
Refining throughputs '000 b/d
US Gulf coast1,1231,0735%1,147-2%
Quarterly profit (mn)
Marathon Petroleum throughput estimates
4Q 17 estimate4Q 16 actual
Crude throughputs by region ('000 b/d)
US Gulf coast1,125986
US midcontinent675696

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