US Gulf coast refining margins retreat post hurricane

Lower distillate prices weighed heavily on US Gulf coast refining margins this week after Hurricane Delta's boost to prices proved fleeting.

Refining margins on the US Gulf coast fell to a three-week low yesterday, after hitting a one-month high last week in the run-up to Delta's landfall on the Louisiana coast.

Margins, calculated using Colonial pipeline conventional gasoline, ultra-low sulphur diesel (ULSD), WTI Houston and assuming a 3-2-1 yield, fell to $6.62/bl yesterday, marking the lowest level since 23 September.

ULSD margins against WTI fell to $6.70/bl yesterday, a two-month low. Diesel markets have been under pressure from high production and weak demand since this summer, when prices fell to a rare discount to gasoline, even after gasoline markets transitioned to lower-priced winter grades last month.

Refiners have tried to curb margin losses by cutting crude throughputs and maximizing the relatively higher-priced gasoline. Distillates production bore the additional pressure of diverted streams of jet fuel, an even less-desireable product amid the Covid-19-related drop in travel. But so far the crude run cuts and efforts to crack finished distillates have failed to provide an effective bottom for distillates, as margins continued to sink, bucking the typical seasonal lift.

Domestic diesel demand improved last week to 4.2mn b/d, the highest level since the first week of March, data from the US Energy Information Administration (EIA) show. Demand for diesel, particularly in the northeast, is expected to rise in the coming months amid forecasts of colder weather and higher consumption of heating oil.

The four-week average of weekly Gulf coast refinery run rates fell to 72pc during the week ended 9 October, the second lowest level in five months, EIA data show.

By Chunzi Xu