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US refiners killed the golden goose: diesel margins

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US refiners killed the golden goose: diesel margins

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Refiners shifted their output to maximize diesel production, and super-charged that by taking unused jet fuel and blending it into diesel.

US refiners killed the golden goose: diesel margins
US refiners expected the spread of coronavirus to kill demand for gasoline and jet fuel, so they rushed to produce more diesel - but now they are sitting with a glut of that product, too.
Overall US fuel demand is down nearly 30 percent in the last several weeks as a result of the pandemic. Diesel demand is only down 20 percent, however.
During the initial surge of coronavirus cases in the United States in March, drivers stayed out of their cars, but trucks remained on the road as people ordered goods for home delivery. Refiners shifted their output to maximize diesel production, and super-charged that by taking unused jet fuel and blending it into diesel.
"The jet demand disruption was just so severe that everyone started blending jet into diesel, it caused the diesel yield from refineries to be really at record levels even despite the lower refinery utilization," said Gary Simmons, chief commercial officer of Valero Energy said during first quarter conference calls.
US distillate inventories were at 151 million barrels last week, highest seasonally since 2016, and have risen by more than 15 million barrels in the two most recent weeks. Gasoline stocks have dropped by 7 million barrels in that same time period.
?Distillate margins have dropped to around USD 13 a barrel, lowest seasonally since 2016, Refinitiv Eikon data showed.
US distillate consumption is off by 20 percent, with the four-week average at a seasonal low not seen since 1995, EIA data showed.
Meanwhile, US distillate fuel exports in April were 1.27 million barrels per day, down slightly from 1.44 million in April of last year. April distillate imports are higher than the 10 year average for that month.
"If our most significant export markets are in a diesel fuel consumption slump and the refineries in Asia and Europe have not cut back enough on their run rates, we might have a global problem that US refiners cannot solve," said Daniel Lippe, managing partner of Petral Consulting Company in Houston.
Investors bullish on the 2020 outlook expect diesel demand to start rebounding by the third quarter as refiners use workarounds to switch more jet fuel into the gasoline pool, according to a summary by Credit Suisse.
But with jet fuel off by roughly two-thirds, the lack of demand from aviation could still cause diesel inventories to bulge.
"The distillate crack
Lamp said that refiners can swing about 10 percent to 15 percent between gasoline and diesel, while Marathon Petroleum said the refiner can swing approximately 10 percent.
Diesel demand has traditionally aligned with the health of the economy, according to Marathon Petroleum's senior vice president of marketing Brian Partee.
"We believe that's going to be the case coming out of this, and we're going to be watching the economic indicators," he said on the company's earnings call.
The US household unemployment rate rose to nearly 15 percent in April, highest since the Great Depression.
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