U.S. REFINERY INSIGHTS: Hopes Fade for Post-Summer Demand Boost
(Bloomberg) -- The spread of the highly contagious delta variant of Covid is threatening to put an early end to the U.S. summer driving season and spark a more precipitous downturn than usual in gasoline demand following the Labor Day holiday in early September.
Refiners, recovering from the demand destruction that followed the rise of the pandemic in March 2020, have enjoyed weeks of growth as states reopened for business and pleasure, social distancing rules relaxed and people hit the road on vacation. Gasoline demand reached a record high of more than 10 million barrels a day in early July before falling, then recovering to a robust 9.78 million barrels a day in the week ended July 30.
On the heels of stronger demand and vaccinations, however, virus positivity rates are accelerating, boosted by the even more virulent delta variant and an entrenched anti-vaccine sentiment among large swaths of Americans. Mask mandates are reappearing and return-to-work-dates are getting pushed back. In Houston, officials are asking the unvaccinated to stay home, local hospitals are getting overcrowded and the school district is weighing a mask mandate for returning students.
“No way is this a positive for demand,” said Robert Campbell, head of oil products research at London consultancy Energy Aspects Ltd.. “We definitely expect more weakness in demand than most forecasters had predicted.”
Energy Aspects has been estimating all along that 2021 summer gasoline use will lag a couple of percentage points behind 2019 levels, tossing out comparisons to summer 2020 when the pandemic decimated fuel use. Others are coming around. Patrick DeHaan, head of petroleum analysis for retailer tracker GasBuddy, said he’s tempering his outlook for fall gasoline based on recent bearish indications tied to the spread of the delta variant.
Campbell said there’s not much evidence so far to suggest that people are holding off summer travel in August. But data from auto club AAA show the average retail price of gasoline fell Thursday for the first decline since July 22, suggesting the summer peak for the fuel is over.
Marathon Petroleum Corp., the largest U.S. refiner, issued a note of caution about the limits of demand improvement this year during its second quarter earnings call Wednesday.
“We saw gradual improvements in the demand for our products as the rollout of COVID vaccinations and a removal of mobility restrictions have led to more economic activity and increased demand for transportation fuels,” CEO Michael J Hennigan said. “That said, we’re close to the end of the summer driving season, which is typically our strongest part of the year.”
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Refining margins (as of Aug. 5, in $/bbl)
- Maya U.S. Gulf coking at $7.,47
- LLS U.S. Gulf cracking at $9.14
- WCS U.S. Midcontinent coking at $29.26
- East Coast Forcados cracking at $4.83
- U.S. West Coast WCS crude oil 3-2-1 crack spread at $40.62
- Nymex 3-2-1 front-month crack spread at $24.04
- For more crack spreads, see CRCK
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