LONDON: US oil refineries are processing record volumes of crude but stocks of refined fuels remain well- contained thanks to strong exports and demand at home.
US refineries processed 17.5 million barrels per day (bpd) of crude in the week ending on May 26, according to the US Energy Information Administration (EIA).
Throughput was more than 1.2 million bpd higher than at the same point in 2016 and 2.2 million bpd above the 10-year seasonal average. Record refinery runs have helped pull down US crude stocks by 31 million barrels since the end of March, with inventories drawing down much faster and earlier in the year than normal.
But despite fears that record processing would result in a build up of unsold products, stocks of gasoline and diesel have generally moved in line with normal seasonal patterns.
Part of the explanation lies in the strength of exports, mostly to markets in Central America, South America and the Caribbean, where aging and inefficient refineries have struggled to meet growing demand from consumers.
US refineries are increasingly geared toward meeting demand from the rest of the hemisphere rather than just the US.
US refiners and traders exported 640,000 bpd of gasoline in the week ending on May 26 and a near-record 1.25 million bpd of distillate fuel oil. Fuel consumption at home is also now running at record or near-record levels, according to an analysis of EIA data.
Gasoline supplied to domestic customers in the US hit a record 9.8 million bpd last week, an increase of roughly 330,000 bpd compared with the same period in 2016.
Distillate supplied averaged 4.1 million bpd, significantly higher than in 2016, though still below the record set in 2007.
From the end of August 2016, the EIA introduced a new and more accurate methodology for calculating exports and estimating weekly gasoline and diesel consumption.
The new methodology uses real-time information obtained from US Customs to estimate current weekly exports where the prior methodology relied on a two-month lagged model to derive estimated values, which in turn introduced a potential source of errors into estimates for domestic consumption.
So estimates for consumption before and after August 2016 are not strictly comparable but the older data can be corrected in retrospect using reliable monthly export data from the US Census Bureau.
The export-corrected time series show consumption of both gasoline and distillate fuel oil has been running at a high level since March.
The increase in gasoline and distillate demand is consistent with more comprehensive monthly data showing consumption of both rising strongly in March after being relatively weak in January and February.
Strong fuel demand in export markets and at home explains why US refining margins have held up well despite the surge in processing rates.
Refinery margins in most parts of the US have been little changed during the second quarter of 2017 compared with the same period in 2016, despite much higher throughput.
According to the EIA, US refiners have added almost 500,000 bpd of atmospheric crude distillation capacity since the start of 2016.
Building and expanding crude units is expensive so once these units were commissioned there was a strong incentive to use them to start recovering the cost.
US refineries are generally more efficient than their rivals in Europe and certainly more so than refineries in Latin America.
US-based refiners also have lower transportation costs given their proximity to sources of crude from Texas, New Mexico and North Dakota, and being closer to major fuel customers than rival suppliers in Europe and Asia.
US refiners are, therefore, well placed to capture market share from weaker and less flexible rivals in other parts of the Atlantic Basin. With so much fuel entering the supply chain there must be some risk that either the domestic or export markets will become saturated.
But the resilience of refining margins indicates the risk is not thought to be high at the moment and is giving refiners a continued incentive running at record volumes.
• John Kemp is a Reuters market analyst. The views expressed are his own.
US refiners process record volume of crude as demand climbs
US refiners process record volume of crude as demand climbs
G7 countries to release oil reserves as IEA agrees to largest ever market intervention
- IEA recommends release of 400 million barrels
RIYADH: Germany, Japan and Austria will release part of their oil reserves after the International Energy Agency recommended the release of 400 million barrels of oil from stockpiles, the largest such move in IEA history.
In a statement, IEA Executive Director Fatih Birol said the flow of oil, gas and other commodities through the Strait of Hormuz have all but stopped, leading global energy supply to fall by around 20 percent.
Ahead of the confirmation of the move, a larger intervention than the 182.7 million barrels that were released in 2022 by in response to Russia’s invasion of Ukraine, several countries began setting out plans to bring their reserves into play as countries grapple with soaring crude prices amid the US-Israeli war with Iran.
Birol said: “I can now announce that IEA countries have decided to launch the largest ever release of emergency oil stocks in our agency's history.
“IEA countries will be making 400 million barrels of oil available to the market to offset the supply lost through the effective closure of the strait.
“This is a major action aiming to alleviate the immediate impacts of the disruption in markets.”
Germany’s Economy Minister Katherina Reiche confirmed on Wednesday her government plans to limit petrol price increases at filling stations to once a day and to introduce more stringent antitrust regulation of the sector.
She did not give an exact timing for those measures, but added that the US and Japan would be the largest contributors to the release of the oil reserves.
The US has not confirmed it would do so, but its Interior Secretary Doug Burgum told Fox News on Wednesday that “these are the kinds of moments that these reserves are used for.”
The announcements did not stop oil prices rising, with Brent crude up 3.26 percent to $90.66 a barrel at 4:29 p.m Saudi time, and West Texas Intermediate up 3.12 percent to $86.05. Both were some way below the $119 a barrel seen earlier in the week.
“The situation regarding oil supplies is tense, as the Strait of Hormuz is currently virtually impassable,” Germany’s Reiche said.
“We will comply with this request and contribute our share, because Germany stands behind the IEA’s most important principle: mutual solidarity,” Reiche said about the IEA’s request.
According to a statement by Reiche’s ministry, Germany will contribute 2.64 million tonnes of oil. This corresponds to 19.51 million barrels.
Reiche stressed there was no supply shortage in the country, which has a legally mandated reserve of oil and oil products intended to cover 90 days’ demand.
Austrian Economy Minister Wolfgang Hattmannsdorfer said his country was releasing part of the emergency oil reserve and extending the national strategic gas reserve, adding: “One thing is clear: in a crisis, there must be no crisis winners at the expense of commuters and businesses.”
Acting ahead of the IEA move, G7 member Japan announced plans to release 15 days' worth of private-sector oil reserves and one month's worth of state oil reserves.
“Rather than wait for formal IEA approval of a coordinated international reserve release, Japan will act first to ease global energy market supply and demand, releasing reserves as early as the 16th of this month,” Prime Minister Sanae Takaichi said in a broadcast statement.
Following a meeting with the IEA on Wednesday, G7 energy ministers said: “In principle, we support the implementation of proactive measures to address the situation, including the use of strategic reserves.”
All IEA member countries are required to keep 90 days’ worth of their nation’s oil use in reserve in case of global disruption.
