U.S. oil refiners in this quarter anticipate operating their plants at over 90% of their crude processing capacity. This is due to low inventories along with an improving demand for gasoline and diesel, as stated by executives and industry experts.
Typically, run rates in the final quarter of the year tend to decline after the conclusion of the U.S. summer driving season. However, analysts note that weaker than normal fuel inventories are prompting high run rates despite the presence of weaker profit margins.
Executives from top refiners have revealed plans to run their networks at between 90% and 94% of capacity until the end of the year, which is slightly above the level from a year ago.
Matthew Blair, the chief refining analyst at Tudor Pickering Holt, commented, “This is a little bit less of a seasonal decline than we have seen in previous years. Despite lower gasoline margins, U.S. refineries are generally still cash-positive. In addition, product inventories are relatively low.”
This year, refiners’ operating margins have dropped as new refineries in Asia, Africa, and the Middle East have become operational, increasing global supplies while demand growth has weakened.
Marathon Petroleum, the top U.S. refiner which manages 16% of the nation’s 18.4 million-barrel-per-day processing capacity, intends to operate its 13 refineries at 90% of their combined capacity, similar to last year. Marathon CEO Maryann Mannen said, “The global macro environment continues to exhibit refined product demand growth.”
Valero Energy, the second largest independent refiner, expects to run at up to 94% after its refining profit declined in the third quarter. CVR Energy will also boost its run rate despite a significant drop in third-quarter earnings. Phillips 66 plans on running at a combined operating rate in the low-to-mid 90s percentage range. Meanwhile, smaller refiners Par Pacific and HF Sinclair both plan to reduce their run rates this quarter.
Nevertheless, for all U.S. refiners, Kpler lead Americas oil analyst Matt Smith said, “the upper end of the range is very strong. It continues the trend we saw in the second half of this year with high runs and shallow maintenance levels.”
As analyst John Auers, managing director of consultancy Refined Fuels Analytics, put it, “If you’re still making money on the incremental barrel, if the margin is still above the operating cost, you’re going to do it.”
US Refiners Maintain High Output Amid Sagging Fuel Inventories and Changing Market Dynamics