Magellan plans for 25pc drop in 2Q fuel demand: Update

Adds more detail from the call throughout.

Magellan Midstream Partners has planned for a 25pc decline in gasoline and aviation fuel demand in the second quarter across its midcontinent and US Gulf coast fuel distribution system, the company said today.

The outlook included a 5pc decline in diesel demand compared with the same period of 2019. But there were many uncertainties in predicting fuel demand as communities try to mitigate the coronavirus pandemic.

"We are in somewhat uncharted territory in trying to predict what refined product demand will do," chief executive Mike Mears said on an analyst call.

About half of that demand would return in June, and fully recover in July, under the low-end scenario the midstream operator discussed today. Gasoline demand over the past seven days was down by 10pc compared with the same week of 2019, and diesel demand was effectively flat, the company said. Jet fuel demand was down by 15pc.

The Magellan pipeline system moves fuel from Texas to New Mexico and to 46 terminals throughout 13 midcontinent states. The system moved 45pc of the gasoline and diesel consumed in Iowa, Minnesota, South Dakota, Arkansas, Nebraska, Kansas and Oklahoma in 2019.

The pipeline system was operating normally today. Magellan moved to separate control centers to limit infection risk, the company said.

Magellan's low-end outlook was based on conversations with major refineries shipping on the Magellan system.

The midstream company expected an unspecified drop in additional diesel demand as drillers halted operations in oil basins nationwide. Magellan did not specify by how much diesel demand across its system would fall alongside the drilling cutbacks, but estimated a $20-25mn reduction associated with that specific demand loss.

Butane blending accounted for the sharpest decline in Magellan's outlook, based on forward crude curves into the fall. The lowest case outlook provided no margin for blending butane into winter gasoline, and would be a $120mn reduction for the company.

Those opportunities would more likely vary facility by facility, Mears said.

"Each one of the facilities has different logistics costs to supply butane, and so some of those facilities that have low costs may have opportunities at certain periods of time," he said.

By Elliott Blackburn