A rebound in refined products exports helped push US Gulf coast refining margins to the highest level since April, leading some refiners to ramp up production.
Gulf coast Colonial pipeline margins against WTI Houston crude, assuming a 3-2-1 yield, averaged $8.17/bl during the week ended 19 June, up from $4.22/bl in the first week of June. Cracks hit $8.91/bl on 18 June, the highest level since 31 March — save for 20 April when crude prices took an unusual dive into negative territory.
Cracks have risen as a steady recovery in gasoline and diesel demand supported prices while months of run cuts trimmed some of the excess supplies. Colonial pipeline conventional gasoline prices — a benchmark for US domestic and export markets — rose to $1.17/USG at the end of last week, the highest level since 9 March.
While the bulk of the price recovery followed higher Nymex futures contracts, the physical spot market has also seen a lift from a rebound in exports.
Gasoline and diesel cargo loadings out of the US Gulf coast averaged 1.2mn b/d so far this month, up from May's average of 720,000 b/d and April's 1.1mn b/d, according to estimates from oil analytics firm Vortexa. Loadings still trail last June's 2mn b/d level, but represent a solid increase nonetheless.
Mexico and Brazil began loosening Covid-19-related movement restrictions this month, leading to higher demand for US fuel from these countries, both of which largely paused spot purchases from the US in May.
Mexico City began to reopen in mid-June, while some states in Brazil lifted quarantine orders this month as well. Some of Mexico's demand for fuel imports, along with the reopening, came in the form of higher demand for MTBE, while Brazil's buying seems focused on light naphtha.
Higher margins have encouraged US refiners to slowly raise crude runs from steep cuts that were put in place beginning in March and throughout April and May. Gulf coast run rates rose to 79pc during the week ended 12 June, the highest level in about two months, according to data from the US Energy Information Administration (EIA). Gulf coast refiners can operate at a minimum of 70-75pc, so further cuts could mean technical and safety complications in addition to poor economics.
Whether US refiners can balance production returns with export demand will be key to a sustainable recovery in these markets. The uplift in US exports could be limited by high inventories in importing countries and the ever-growing pandemic in Latin America.
Mexico's gasoline inventory remains well-above prior year levels as of mid-April, at 3.83mn bl, data from the Mexico energy ministry (Sener) show. This is in part because state-owned Pemex raised production by 10pc year-on-year to 220,000 b/d in April.
Brazil's appetite for US imports is limited by inexpensive and ample ethanol supplies as well as rising domestic production from state-owned Petrobras.
