US crude discounts not changing Phillips 66 slate
Houston, 27 October (Argus) — Widening discounts for US crudes to imports have shifted crude sources but not Phillips 66's overall refining slate, the company said today.
Hurricane disruptions to exports, seasonal maintenance and logistical constraints have led to a supply build up of US sweet crude on the US Gulf coast, while strong European and Asian demand lifted North Atlantic crude prices.
North Atlantic Brent crude has averaged a $5.98/bl premium to the US benchmark WTI so far this quarter, compared to a $1.57/bl premium in the same period last year. Brent averaged a $4.04/bl premium during the third quarter — almost double the $2.05/bl average in 2016.
Discounts for domestic sweet crude widened as discounts for US Gulf coast sour crude to sweet benchmarks narrowed. Mars, a sour crude benchmark, averaged a record-low $3.20/bl to Light Louisiana Sweet during the third quarter. The discount widened to $3.47/bl so far this month, still 24pc lower than the same period last year.
"Clearly the Opec cuts have impacted pretty heavily the heavy grades, so you have seen that light-medium, light-heavy differential come in," president Tim Taylor said. "But the Canadian crude has filled a lot of the gap."
The wide spread between domestic and imported sweet crudes was not sustainable and had not shifted the US independent refiner's overall slate, the company said. Phillips 66 expected the Brent-WTI spread to return to $4/bl in 2018.
Coastal refiners took advantage of more options for crude sources instead of increasing sweet processing, Taylor said.
"Where we buy has shifted significantly around as we look through options for supply," Taylor said.
Chief executive Greg Garland offered a brighter outlook for refining in 2018 as US product inventories fall and major Phillips 66 spending in the segment drew to a close. The company will this quarter complete work increasing the distillate yield of its 194,000 b/d refinery in Ponca City, Oklahoma. Projects increasing gasoline yields at its 356,000 b/d joint venture Wood River, Illinois, and 250,000 b/d Linden, New Jersey, refineries will finish next year.
Phillips 66 planned no major investments to further increase lower sulfur diesel production or reduce low quality distillate output ahead of new requirements for lower sulfur marine fuels.
"I know there is a lot of exuberance in the industry around the specification change," Garland said. "I think it is probably constructive in terms of diesel cracks, but I do not think it is going to be enough that it would incent us to make an investment."
And the company had no immediate plans to change its US refining portfolio after California rejected efforts to add supply options for its refineries there.
"You get frustrated with California, what goes on there," Garland said. "But they are still reasonably good assets, well positioned, generating good cash for us, and so I do not think you will see us do anything with the California assets in the near term."
|US Gulf coast||694||701||-3%||715||7%|
|US Gulf coast||$7.26||$5.47||25%||$6.74||-19%|