Daily operations at refineries along the U.S. West Coast topped a nine-month high last week, with refinery utilization rates at 87% percent of total regional capacity; however, healthy runs were not reflected in refinery production, according to statistics released Wednesday by the U.S. Energy Information Administration (EIA).
PADD5 refiners processed 2.426 million b/d of crude oil the week ending March 18, up 67,000 b/d from the week prior, EIA said. However, production for gasoline, diesel fuel and jet fuel were lower week to week.
West Coast gasoline producers cranked out 1.611 million b/d of finished motor gasoline, which was 13,000 b/d lower on the week. Perhaps the reduction was tied to less gasoline blending. Notably, PADD5 refiners and blenders have been maxing gasoline output, as production remained about the 1.6 million b/d mark over the past month.
Meanwhile, total West Coast gasoline stockpiles hit a nine-week low after drawing 1.2 million bbl to 30.7 million bbl last week, according to EIA. Even so, total mogas inventories were still 2.4 million bbl higher than last year during the corresponding week.
The region was still offloading gasoline from the water, with PADD5 imports coming in at 28,000 b/d last week.
Meanwhile, the U.S. West Coast was glutted with diesel fuel inventories for this time of year after building 500,000 bbl to a 15-month high of 15.7 million bbl last week. That's a solid 800,000 bbl higher than last year's supply levels at the time.
Regional diesel fuel inventories built a half million bbl despite production levels falling to a six-week low of 547,000 b/d.
PADD5 jet fuel production levels fell 10,000 bbl to 404,000 bbl last week while inventories drew 200,000 bbl to 10.2 million bbl. Despite the draw, total regional jet fuel supplies were still 800,000 bbl higher than last year's inventories. Jet fuel imports continued to pour into the West Coast, with the region receiving 51,000 b/d from the water last week, EIA said.
Analysts at Citi acknowledged today that a mixture of money flow and temporarily solid fundamentals have lifted the crude oil complex in the late fourth quarter. But the bank notes that a $45/bbl number for December Brent or December WTI appears to represent a formidable ceiling of resistance in the multi-trillion dollar oil trade.
Contributing to the impressive February-to-current rally have been a variety of fundamentals, including impending North Sea field maintenance, a surge in Chinese imports, and well-documented disruptions in Nigerian and Northern Iraqi exports. If China continues robust imports near the 8-million-b/d mark and Chinese domestic consumption declines by 200,000 b/d, there is more support. But a warning comes in the April trading. Citi has observed trouble for sellers looking to place African cargoes and notes that a production rise of some 350,000 b/d looms as UAE field maintenance in Murban ends by April. The bank tends to believe cargo tracking data that suggests Iranian exports of about 1.5 million b/d, well below the 2.2-million-b/d inflated number that comes from official Iranian channels.
Citi researchers also note that it's no coincidence that once June WTI traded at $41/bbl and calendar 2017 strips got to around $46/bbl, the move was accompanied by the first oil rig count increase in 17 weeks. That suggests that some U.S. drillers have started drawing down DUCs (drilled but uncompleted wells). Citi believes that at $40/bbl, U.S. oil rig counts could surge back above 400.
The bank's analysis also suggests money flow, and specifically investor positioning, has been the biggest first-quarter catalyst for a rally. The spot price rise of $11/bbl (about 38%) since mid-February was accompanied by a 177,000 lot (representing 177 million bbl) increase of 47% in managed money net positioning on combined WTI and Brent. Meanwhile, short-covering positions fell by 149,000 lots to 142,000 lots. Gross shorts now constitute only 2.7% of open interest, compared with 5.4% in mid-February.
Overall gross long positions are at an all-time high of 695,000 lots, but as a percentage of open interest, the skew appears manageable.
Citi posits that the entire rebalancing process for crude could come off the rails on further rallies, particularly if much of the contango disappears. Higher spot prices could provoke earlier inventory drawdowns and be accompanied by eroding Chinese demand and returning U.S. production. Citi sees a clear need for crude oil inventory draws this summer, particularly in the U.S.
Its overall forecast is bearish to neutral for U.S. crudes. Brent-linked crudes are currently regarded as neutral, but downward pressure could come as European and Asian turnarounds decrease world demand. Postscript: The bank believes that today's tragic Brussels attacks could drive more "risk off" sentiment, putting even more downward pressure on oil.
Anyone looking for signs that U.S. oil demand is back on the rise can take heart from figures released by the American Petroleum Institute (API). API's February Monthly Statistical Report showed total petroleum deliveries climbing 2% from February 2015 to be the highest February deliveries in eight years, averaging 19.8 million b/d.
Gasoline demand led the way with usage rising 5.2%, thanks to mild weather and cheap prices. At 9.1 million b/d for the month, gasoline deliveries for February 2016 were the highest for any February on record.
The distillate market was punished by milder-than-normal weather. February distillate deliveries compressed 17% from the prior year to average 3.8 million b/d.
Jet fuel deliveries proved to be a sturdy 1.531 million b/d in February, up 6.1%from the prior year to lead the percentage gain among the major transportation products.
Year-to-date jet fuel deliveries are up 8.8% from the prior year to 1.526 million b/d, again leading the percentage gain for the lead transportation fuels, dwarfing the 3.2% rise in gasoline deliveries and a sharp contrast to the 15.7% decline in distillate deliveries.
Exports of crude oil and refined products increased 6% in February to average just below 5 million b/d, the highest February export level ever.
Stocks of finished products proved to be robust in February. Distillate stocks for the month rose 32.2% from the same period last year to end at 162.8 million bbl, the highest February inventory level in 35 years. Jet fuel stocks rose 10.2% from the prior year to end at 42.5 million bbl, and stocks of motor gasoline ended February 4.9% from the prior year.
Crude oil stocks by API's count elevated 16% from prior-year levels to reach 519.6 million bbl, the highest February inventory since 1930.
Energy Transfer Partners' (ETP) parent company Energy Transfer Equity LP (ETE) has held discussions with parties interested in buying Sunoco LP and is open to more, according to wire service reports citing sources familiar with the matter.
ETE was reportedly approached by at least one company this year wanting to purchase the fuel distributor and retailer, said the stories from Reuters and Bloomberg. The potential sale would involve ETE's ownership of the general partnership of Sunoco, said by the sources to be valued at a figure exceeding $2 billion.
A 36.4% stake in the limited partnership in Sunoco owned by Energy Transfer Partners would also have been divested, according to accounts of the discussions.
Disagreement over the valuation of Sunoco was reportedly the reason the talks did not advance, but sources cited in the stories said new interest in the c- store company may result in a fresh round of discussions.
Sunoco is an MLP that operates more than 850 convenience stores and retail fuel sites, and distributes motor fuel to convenience stores, dealers, commercial customers and distributors located in 30 states at about 6,800 sites.
In 2015, Susser was acquired by Sunoco LP from ETP Holdco Corp. and Heritage Holdings, which are wholly owned subsidiaries of ETP.
The lucrative Canadian retail divestment by Imperial Oil has begged the question on how much U.S. refiners' retail assets are worth, and the answer is U.S. retail assets may not fetch as much as sites in Canada, according to Barclays Capital.
Also, Suncor, another major integrated Canadian oil company, could expect a financial windfall if it chooses to divest its vast retail assets, based on the recent retail asset sales at Imperial Oil.
On Tuesday, Imperial Oil announced it has reached agreement with multiple parties to sell its remaining 497 company-owned Esso retail stations for C$2.8 billion (US$2.1 billion). The price tag is significantly above Barclays's previous assumption of C$1.2-C$2.0 billion.
In light of the strong interest from buyers, the market has asked what is the lateral implication to Suncor and the U.S. refiners, the bank said.
"Could we apply the same valuation metrics to the U.S. refiners' retail operation? The short answer is probably 'no' since there are some distinct differences between the Canadian and the U.S. retail fuel markets," Barclays said.
In each of the main Canadian markets, the four major players (Esso, Petro Canada, Shell and either Chevron, Husky or Ultramar) account for roughly 80% of the market share.
As a result, margins tend to be stronger compared to their U.S. peers. As a side reference, the U.S. retail site has historically sold for an average 5-6x EBITDA (without the land) or $1-$2 million per owned site (assuming the average location and average size of the lots), Barclays said.
On Suncor, the company's retail network consists of 1,529 outlets of which management estimates about 55% are controlled by the company (the company owns or leases the properties), or about 840 stores.
Assuming the split between owned and leased stores at 75/25 and the value of a leased store at 25% of the owned store, the bank estimates Suncor's owned and leased retail network could fetch around C$3.9 billion.
At a 50/50 split between owned and leased stores, Suncor's retail network value is at C$3.0 billion. The bank estimates the remaining branded network's contracts will not be worth much, probably less than C$100 million.
Alternatively, Suncor's retail network value could be estimated based on the asset's EBITDA estimate, the bank said.
According to Suncor's management, retail has historically accounted for 50%-60% of its total marketing profit (2015 was in the high end of the range due to the strong margin environment).
In 2015, total marketing profit was C$370 million. Assuming a 25% effective tax rate and C$100 million in depreciation, depletion and amortization, Barclays estimates marketing's 2015 EBITDA at approximately C$600 million and retail EBITDA at roughly C$360 million.
"Since we believe the owned/leased stores contribute the bulk of retail's operating profit, we estimate Imperial Oil's retail profit at approximately C$200 million in 2015 or price/2015 EBITDA estimate of 14x. Applying 12x-14x to our estimate of Suncor's 2015 retail EBITDA of C$360 million suggests the company could potentially fetch C$4.3-C$5.0 billion from this asset," the bank said.
Accordingly, Barclays now estimates Suncor's retail network could be worth C$3- C$5 billion compared to its previous assumption of less than C$3 billion.
“I liked the detail presented that is necessary to understand the complexity of the business. Major points were stressed time and time again to reinforce the message. This course provided me the tools to take back to my job and use to increase our profits AND buy smarter to reduce my customers cost.”
“Topics were current and relevant. Speakers were great and very knowledgeable. Thanks to the education I have received over these past two days, I can return to work and speak intelligently with our fuel buyer. Now I know the right questions to ask!”
“Tons of information! If you’re newer to the industry this will cover most of the basics and then some. Be prepared to listen and learn!”
“As a new buyer, the information provided in this conference provided me with the tools to successfully negotiate with suppliers.”
“I thoroughly enjoyed this class. It was fast-moving, informative and we learned a ton! Scott & Dolores were terrific speakers.”
“Excellent job. I will definitely improve my company’s bottom line.”