Refinery margin tracker: Colonial outage threatens USGC margins

US Gulf Coast refining margins have risen as the lifting of coronavirus restrictions have boosted products demand, but those margins could come under pressure as the Colonial Pipeline – the main conduit of USGC refined products to the US Atlantic Coast – was shut down due a ransomware attack, an analysis from S&P Global Platts showed May 10.

After dipping mid-week, US Gulf Coast margins picked up steam to end up on the week ending May 7. Cracking margins for WTI MEH reached $13.97/b on May 7, compared with the week’s average of $13.66/b, S&P Global Platts Analytics margin data showed.

This is up from the prior week’s average of $13.06/b.

Margins have been rising as the coronavirus vaccine rollout has increased personal mobility, raising prices and demand for gasoline.

But the Colonial Pipeline outage has caused refined products to be stranded on the USGC, as inventories are already high. USGC gasoline inventories were at 86 million barrels the week ended April 30, close to the maximum observed level of 96 million barrels last year, US Energy Information Administration data shows.

Some refiners were seen chartering floating storage for their products, including Marathon, Valero, Phillips 66, and PBF for periods ranging from 15 days to 40 days.

And some USGC refiners were said to be cutting runs even as Colonial said it was working to return the pipeline by the end of the week. The line which carries 1.5 million b/d of gasoline and 1.2 million b/d of distillate – from Pasadena, Texas, to Linden, New Jersey, and the mouth of New York Harbor.

The refiners included Total, which some sources said cut fluid catalytic cracking unit runs at its 225,500 b/d Port Arthur, Texas, refinery. Motiva was also said to have shut a crude unit at its 607,000 b/d Port Arthur refinery, but according to some sources this was due to a power outage over the weekend.

Expressing surprise they would shut for the Colonial Pipeline outage given the strong margins, one refined products broker said “these guys [Total and Motiva] have access to Explorer and Magellan pipelines and, at worst, can barge to Baton Rouge and other Louisiana locations to ship up Plantation” Pipeline.

However, Citgo said it did reduce rates at its Lake Charles, Louisiana, plant “to maintain as much flexibility as possible.”

The Explorer and Magellan pipelines run from USGC to the Midwest while the Plantation Pipeline, owned by Kinder Morgan, can carry 720,000 b/d of gasoline, diesel, and jet from Louisiana to the Washington DC area.

US Atlantic Coast lines up supplies

On the USAC, weak economics more than halved regional refinery capacity from the 1.73 million b/d in 2007 to 818,200 b/d in 2021, increasing dependence on exports from the USGC and Europe.

USAC cracking margins were higher last week, with Algeria’s Saharan Blend up to an average $13.69/b for the week ended May 7, up from $12.15/b the prior week.

European margins also rose, and could rise further as refined product imports from Northwest Europe as well as from the Mediterranean into the USAC are expected to increase.

According to Kpler commodity tracking data, so far for the week ending on May 14, gasoline and ULSD imports fixed from Northwest Europe are averaging 370,000 b/d, up 88,000 b/d from the prior week. Gasoline volumes fixed from Mediterranean refiners to the USAC for the week ending May 21 are averaging 140,000 b/d, compared with zero the prior week, according to Kpler.

CPC Blend cracking margins in the Mediterranean rose to average $6.36/b for the week ended May 7, up from $5.94/b the week earlier. NWE cracking margins for Forties averaged $2.33/b for the week ended May 7, up from $2.22/b.

Irving Oil, owner of Canada’s largest oil refinery in New Brunswick, increased its flows further south than its usual northern New England region, with a 263,000 barrel cargo of gasoline fixed for New Haven, Connecticut, according Kpler data.

Demand in Eastern Canada – Irving’s domestic supply region — is down as lockdowns to prevent the coronavirus spread are reintroduced through much of the region, freeing up barrels to head south and fill in the gaps left by the Colonial Pipeline shutdown.

So far this year, gasoline exports from Irving into New Haven have averaged 13,000 b/d, compared with the 8,000 b/d imported in 2020.

Southern USAC supply

Even without the imports, the USAC was not yet in dire straits, according to Ernie Barsamiam, CEO of Tank Tiger, a storage broker.

“Most of the terminals along the pipeline should have at least 10-15 days of supply, but since the market has been backwardated perhaps some are running leaner,” Barsamiam said.

All of the markets served by Colonial, he said, from Norfolk, Virginia, north can be covered by waterborne supply, while most of terminals served by Colonial in North Carolina, South Carolina and Georgia can receive barrels on the Plantation Pipeline, with the shortfall covered by long-distance trucking from Wilmington, North Carolina; Charleston, South Carolina; and Savannah, Georgia.

“There will be price increases at the rack at these locations and the severity will largely depend on how prolonged the shutdown is,” Barsamiam said.

Source: Platts