Spot prices for gasoline and diesel are in many cases more than 10cts/gal above last week's lows, but aggressive rack discounting across many states may indicate that refiners aren't confident in a stable autumn market. OPIS has confirmed heavy discounts off of rack prices across inland markets, including the Pacific Northwest, the Midcontinent and the Southwest.
Texas is a prime example. Notwithstanding rack postings in the $1.50/gal neighborhood or greater, the price of E10 is heavily discounted, particularly in western parts of the state. OPIS confirmed sales in Laredo at 16.1cts/gal under OPIS low, netting out to just over $1.3735/gal and Abilene netted out to $1.4085/gal, thanks to a 7ct/gal discount. Volume buyers could find Austin gasoline at 8.96cts/gal under the low (or about $1.3865/gal) and Corpus Christi buyers saw availability this morning at $1.369/gal, some 11.2cts/gal under OPIS Low.
Rocky Mountain suppliers are similarly challenged to clear product at prevailing numbers. Denver E10 could be procured for $1.477/gal, or 5.3cts/gal under posting and at least one Colorado Springs seller discounted gasoline by 10.45cts/gal. It wasn't just gasoline that saw a bit of an alternative market -- diesel in Denver was discounted by more than 6cts/gal to a $1.52/gal number.
New Mexico may take the prize for the heaviest discounts. OPIS confirmed E10 sales in Albuquerque at $1.4185/gal, or 12.65cts/gal below the OPIS low, and Moriarty saw an 11.95cts/gal discount net out to a $1.4305/gal purchase price.
Glancing at deals, one might also conclude that the boom times in North Dakota are over, thanks to a slowdown in economic activity tied to shale cuts. Mandan diesel was available for nearly 10cts/gal below OPIS low at $1.528/gal.
In the Pacific Northwest, sharp buyers could find diesel for nearly 8cts/gal below postings in Portland, Ore., or about $1.5225/gal. Gasoline was backing up there as well, with rack barrels at 5.15cts/gal under OPIS low or about $1.375/gal.
The heavy discounting attests to a fact of life in markets distant to refining centers in Texas, Louisiana, Chicago and California. Spot prices can rally on the back of short covering, or a local refinery issue, but moving gasoline between driving season and spring turnarounds is a tough proposition, and fall harvest demand is no longer the catalyst for diesel that it once was.
Wall Street houses like Morgan Stanley may want to reconsider their glowing projections for U.S. refiners, at least when they talk about Gulf Coast plants. For a number of Gulf Coast operators, margins for gasoline have gone from the penthouse to the outhouse, while diesel is not delivering nearly the same returns that it did in 2013 and 2014.
The comparisons are most drastic when one analyzes the strongest link in the Gulf Coast crude oil assortment -- Light Louisiana Sweet (LLS) -- and compares that number to marquee products. This morning saw conventional blendstock (CBOB) move to an autumn specification that because of higher RVP is easier to manufacture. Spot CBOB was trading 8cts/gal below October NYMEX futures this morning for prompt Cycle 51 shipping, or about $1.3475/gal at presstime, for a per barrel price just above $57/bbl. With LLS selling for $4.40/bbl over WTI, some refiners without access to cheaper blends have to pay about $50/bbl for crude and face a gross margin of $7/bbl on gasoline. That compares with about $15/bbl in early September last year, and just over $7/bbl in September 2013.
Both of those years saw much stronger diesel numbers, however, and that helped to swell refinery returns. At presstime, the ultra-low-sulfur diesel "crack" versus LLS was $13.84/bbl. That compares with diesel cracks in the $20-$27/bbl area last year and about $24/bbl in 2013.
Some of the weakness can be explained by the multitude of cheaper hydrocarbons that can be blended to make finished autumn gasoline. But longtime Gulf Coast traders sense that the pace of fall refinery work may be quite deliberate if the deterioration in cracks continues.
Gulf Coast gasoline margins quoted in the fourth quarter are even more depressed, with CBOB and RBOB quoted at just a few dollars above LLS quotes.
The performance is a far cry from what existed for most of the third quarter. In June and July, Gulf Coast refiners commonly sold gasoline for $20-$30/bbl above sweet crude.
The shut fluid catalytic cracking unit at PBF Energy's 190,000-b/d Delaware City refinery is expected to return to normal operations in early September after completing repair work, industry sources told OPIS on Thursday.
A fire caused the unplanned shutdown of its gasoline-making unit, which is rated at about 75,000-80,000-b/d, on Aug. 21, and repairs to this unit are expected to take a couple of weeks.
As a result of the unplanned FCC unit shutdown, PBF Energy had brought forward the planned maintenance of the sole crude unit and a reformer by about a month to early September, and this turnaround will be completed in early October.
The FCC unit is expected to run on VGO feedstocks during the crude unit turnaround.
The Delaware City refinery is to return to normal operation by early October.
The FCC shutdown and accelerated crude unit turnaround have failed to jolt the New York Harbor gasoline market as RBOB prices continue to fall amid oversupply concerns. Also, the peak gasoline demand season is winding down at the tail end of summer.
Tesoro Corp. turned in net earnings of $582 million in the second quarter, more than double net earnings of the same period a year ago, buoyed by solid fuel demand and growth in its logistics business, the company reported late Thursday.
Operating income for Tesoro's refineries was $753 million, up from $358 million in second quarter 2014. The higher margins and lower operating expenses (largely due to lower natural gas prices) contributing to the bottom line of a number of refiners were in Tesoro's case partially offset by turnarounds and maintenance, the company said in a statement.
Plant utilization was 92% of Tesoro's total capacity in the April-June period, but the company expects its refineries to run at 95% to 100% utilization in the third quarter.
Tesoro's realized gross refining margin in the second quarter was $19.13/bbl, compared to $13.11/bbl a year earlier, with manufacturing cost (before depreciation and amortization) of $5.58/bbl compared to $5.88/bbl in second quarter 2014.
"Capture rates in the quarter were impacted by the combination of refinery downtime, less advantaged crude oil differentials, and increased processing of intermediate feedstocks in our California and Pacific Northwest refineries," Tesoro said.
Operating income in Tesoro's logistics segment was $109 million in the second quarter versus $48 million in April-June 2014. The company attributed the growth to the Rockies natural gas business and additional volumes from last year's expansion and reversal project on the High Plains Pipeline in North Dakota.
The company's marketing segment (retail and wholesale) notched operating income of $212 million, up from $88 million in the second quarter of last year. The increase was due to strong market conditions and growing consumer demand, according to Tesoro.
Tesoro's California refineries (Martinez and Los Angeles) saw gross refining margin of $20.10/bbl, up from $12.15 a year earlier and its Washington and Alaska refineries showed gross margin of $17.12/bbl, compared to $8.66/bbl in second quarter 2014. Manufacturing costs in both segments were lower in second quarter 2015 versus a year earlier.
However, gross margin in Tesoro's Midcontinent segment (North Dakota and Utah) was lower year on year -- $17.15/bbl in Q2 2015 versus $22.14 in Q2 2014. In addition, manufacturing cost averaged higher for the two refineries -- $5.94/bbl compared to $4.14 in April-June 2014.
The U.S. average retail price of diesel fuel fell below that of regular gasoline earlier this month for the first time since 2009, reflecting stellar overall gasoline demand and unusually high Californian retail prices, although the phenomenon will likely be brief, the U.S. Energy Information Administration said on Thursday.
The average U.S. regular gasoline price was 2.802/gal for the week ended July 20, 2cts higher than $2.782/gal for the average diesel fuel price, as gasoline has surpassed diesel for a second consecutive week, EIA's data showed.
It was the first time since early August 2009 that retail gasoline was pricier than diesel fuel. From August 2009 through June 2015, retail diesel fuel sold at an average of 34cts/gal over regular gasoline, with the difference reaching a peak at 90cts/gal in January, according to the EIA.
According to GasBuddy.com, which provides retail fuel pricing information and data, U.S. diesel's premium over gasoline was the highest in the West Coast, at over 40cts/gal last week. The only other region that also saw the diesel- gasoline inversion was the Midwest at 3.50cts/gal, with prices at the Gulf Coast and Southwest close to parity in the week ended July 19.
While diesel demand tends to be the weakest in the summer, U.S. and global demand for gasoline was unusually strong this year. In addition, even though gas prices at the pump in most parts of the U.S. have followed crude oil prices lower, the national average retail price was lifted by skyrocketed retail gasoline prices in California due to ongoing supply disruptions there.
Traditionally, relatively higher diesel prices reflect a combination of strong global diesel demand, U.S. federal fuel taxes that are 6cts/gal higher than those for gasoline, and higher production costs of ultra-low-sulfur diesel that was phased in between 2006 and 2010 in the Northeast, which accounts for more than 80% of the U.S. heating-oil demand.
However, the rare price parity between U.S. gasoline and diesel retail prices is likely to be a short-term phenomenon, as mogas consumption moderates with the end of the summer-driving season and diesel demand grows in response to agricultural harvest in the fall and the increasing use of home heating oil during winter, the EIA said.
The EIA expects retail gasoline prices to average $2.27/gal in December 2015, compared to diesel fuel's $2.87/gal, it said in its July Short-Term Energy Outlook.
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