Impressive margins for US refineries through 2012 are unlikely to be part of a greater "golden age of refining" globally, and could weaken in 2013 as refineries come back online and new refineries are added to the mix, according to a Thursday morning JP Morgan research note.
"Refinery margins have demonstrated extraordinary strength recently, underpinned by the combined resilience of gasoline and middle distillate cracks," analysts at the bank said. "This appears at odds with tepid oil demand growth and the precarious state of the global economy, raising the question as to whether the strength is sustainable."
US refining margins became steadily stronger beginning in late February 2011, with cuts in Libyan crude supply helping to accelerate refinery closures in the Atlantic Basin. Globally, shutdowns in 2011 have largely offset global refinery additions, according to JP Morgan.
According to Platts data and Turner, Mason & Co. yield formulas, Midwest WTI cracking margins have averaged $39.95/barrel in August, up from an average of $14.85/b in February 2011. Gulf Coast sweet margins averaged $16.07/b in August, compared to $5.95/b in February 2011. Atlantic Coast Bonny Sweet margins averaged $13.18/b in August, and just $4.23/b in February 2011.
Capacity recently lost to shutdowns appears to be stabilizing, and new additions - "a growing class of merchant exporter" refineries, dedicated to global product supply - continue to be added to the global refinery mix and could affect margins negatively, according to the JP Morgan analysts.
"[R]refineries on the brink of permanent closure often return to operation under new ownership," they said, as "several refineries at risk last year have recently resumed operations, with several more also expected to resume."
Into 2013, the refinery picture becomes more difficult to ascertain. But unplanned outages at large complexes such as BP's 405,000 b/d Whiting, Indiana, refinery and Motiva's new 325,000 b/d crude unit in Port Arthur, Texas, will likely be resolved by then, putting increased downward pressure on margins.
Source: Platts