OPIS Blog

Exports and Refinery Closure are Key to USGC Gasoline Market

The Gulf Coast spot gasoline market will face several developments that could affect prices in 2025, including the first-quarter closing of LyondellBasell’s 268,000 b/d Houston refinery, export demand, and a planned RVP change in eight Midwest states this summer.

LyondellBasell, which in 2022 announced plans to close its sole refinery by the end of Q1 2025, announced in October it planned to begin closing some units at the facility as early as January. The company said in a Securities and Exchange Commission filing that current economics don’t justify waiting until the end of the quarter to close the plant, adding that it suspects that year-end “seasonality” will result in softer demand across multiple businesses.

Lyondell said it plans to begin shutting its crude distillation unit and a coker in January and plans to take the fluid catalytic cracker out of service in February. Without that equipment, the company will not be able to process heavy sour crude. That updated timetable makes it likely the plant will not be able to produce gasoline in the second half of the first quarter.

“You are minus that for starters for the region, and you will either have a redistribution of product flows from other regions of the country,” a market source said. “I’m guessing [the Midwest] PADD 2 might be a source of redistribution of products for Wood River or Whiting, or maybe even Irving on the East Coast. Other refiners in the Gulf Coast [PADD 3] could increase production. The Explorer Pipeline can pipe product to the Gulf Coast and Capline has been reversed and can help with this.” Irving Oil’s 320,000 b/d refinery is in New Brunswick, Canada, and the Explorer Pipeline conveys refined products from Texas to points in the Midwest. The Capline Pipeline runs from Illinois to Louisiana. Work was completed in 2021 to allow the line to transport crude oil from the Midwest to Louisiana.

Some market sources expect the refinery’s closure will likely have little impact on Gulf Coast spot gasoline trading, given recent capacity additions in the region. They include a 250,000 b/d expansion of ExxonMobil’s Beaumont, Texas, refinery, a new coker at Valero Energy’s Port Arthur, Texas, plant, a 40,000 b/d addition at Marathon Petroleum’s Galveston Bay, Texas, facility and a 38,000 b/d capacity addition at Citgo’s Lake Charles, La., refinery.

In addition, Chevron said recently it completed a project at its Pasadena, Texas, refinery that is expected to increase the facility’s ability to process lighter crude oil grades by 15% to 125,000 b/d.

The Gulf Coast gasoline market could also benefit from new supply from the 650,000 b/d Dangote refinery in Nigeria. The closure of the Lyondell plant could come as Dangote ramps up gasoline and distillate production. The company recently sent its first cargo of jet fuel to the U.S. and has been working to reduce sulfur in its gasoline and diesel output to meet U.S. and European gasoline and diesel specifications. If and when that could happen is unclear.

Once market source said production of on-spec fuel from Dangote could help to keep cracks depressed in the new year.

“I don’t think Gulf Coast differentials will be too impacted, but the Dangote refinery is going to keep the Atlantic basin flush with supply, so cash refining cracks should be pretty depressed for a while,” the source said.

In addition, exports, which in recent months have affected Gulf Coast gasoline differentials, will remain an issue in 2025, sources said.

“A key will be exports, this will track close to Asian demand and the Chinese economy, as well as their fuel substitution,” another source said.

The Energy Information Administration recently said PADD 3 gasoline exports in September fell to an average of 660,000 b/d from 745,000 b/d in August. Although total exports from the region have been below where they were at times in 2023, they will remain a critical part of the gasoline market in 2025.

Gulf Coast refiners have reported strong demand from Brazil and Mexico in recent months and refinery runs in the region remain high.

Refinery rates for much of November have been in the mid-90% range and utilization is closing out the year at one of its highest levels since summer.

“Export demand has been driving [differentials] in a big way to end the year,” a source said.

Gulf Coast gasoline discounts to the NYMEX, particularly for CBOB, have been narrowing in recent weeks, something another source attributed to strong export demand. But any slowing in exports could cause differentials to weaken sharply.

“Exports are on [the] move up,” a source said about the recent strength in gasoline differentials. “When that slows, we’re going to come screaming off.”

Sources are also keeping a close eye on the potential 1-lb psi RVP waiver in the Midwest, which could have a ripple effect on Gulf Coast refiners.

The governors of eight Midwest states in 2022 petitioned EPA to eliminate the 1-lb waiver that has prevented the sale of E15 in those states during the high-demand summer driving season. While the EPA approved the request, it delayed implementation until spring 2025.

But a number of sources told OPIS they believe it is likely the waiver will be delayed by another year. But if not, then refiners will have to make a lower RVP blendstock for those states.

A study conducted by consultants Baker & O’Brien said that removing the waiver could lead to short gasoline supplies in the affected states which could lead to the Midwest taking more fuel from the Gulf Coast.

Potential U.S. tariffs from the incoming Trump administration in the new year could emerge as a wild card for the market.

“The RVP waiver … and a potential tariff on Canadian oil could definitely have a ripple effect on Gulf gasoline,” a source said. “It definitely feels like the market thinks oil will be excluded, but if it’s not, watch out. The RVP waiver just adds more uncertainty on how it will work, will we see demand shifts, etc.”

President-elect Trump’s pledge to impose tariffs of 25% on imports of all goods from Mexico and Canada could affect nearly 25% of U.S. refinery crude throughput and raise the cost of crude oil, according to a recent analysis by Tudor, Pickering, Holt & Co.

According to the investment bank, U.S. refiners processed about 4.03 million b/d of crude oil from Canada over the last 12 months, accounting for nearly 22% of all U.S. throughput. The bank added that 71% of those barrels landed in the Gulf Coast, with 11% sent to the Midwest.

In addition, TPH said U.S. refiners ran 587,000 b/d of crude oil from Mexico over the last 12 months, a volume equal to more than 3% of total U.S. output. Some 87% of Mexican barrels landed on the Gulf Coast.

One industry source said that if Trump makes good on his tariff promises, some of those costs would be passed through to buyers, raising the price of Canadian crude and leading to higher retail gasoline prices in the Midwest.

Should that happen, the source said it is likely that Gulf Coast barrels will be moved to the Midwest if the arbitrage opens.

Market participants are also keeping an eye on small refinery exemptions from compliance with the Renewable Fuel Standard program.

The Supreme Court in October said it would hear a refining industry petition to hear a case that could decide which federal court should hear SRE-related litigation after the 5th U.S. Circuit Court of Appeals in November 2023 overturned an EPA decision to deny SRE petitions from refiners.

“The Supreme Court ruling on waivers is the biggest wildcard,” a source said. “[It] could be a tailwind to refiners and help profit margins and add viability to projects. Definitely more of a diesel market impact, though. If the court rules in favor of SREs, then I would say refiners could shift toward diesel instead of gasoline.”

Tags: Spot Market