Slow Comeback for U.S. Refiners Is Starting to Hit Crude Prices
DCOR LLC’s Edith offshore oil and gas platform stands in the Beta Field off the coast of Long Beach, California, U.S. (Photographer: Tim Rue/Bloomberg)

Slow Comeback for U.S. Refiners Is Starting to Hit Crude Prices

America’s oil refiners are taking their sweet time to come back to full capacity after the historic arctic blast that crippled the U.S. Gulf energy belt last month.

Crude processing rates in the region, the heart of U.S. oil refining, are stuck at about 80% of levels seen before the winter storm and ensuing power outages that forced shutdowns. That’s creating a weird dislocation in the market, pushing down physical crude prices at a time when energy demand is on the rise. At the same time, refining margins jumped this month to the highest in about a year.

But higher margins aren’t enticing refiners to ramp up their production -- at least not yet. For now, refiners actually have bigger-than-usual stockpiles and are happy to keep selling from inventory rather than increase output, since that might depress margins.

“Presently, we have 28 days of supply in tanks across the country,” said Debnil Chowdhury, head of the Americas refining team at IHS Markit Ltd. “That’s the most we’ve had since at least 2019 for this time of the year.”

Slow Comeback for U.S. Refiners Is Starting to Hit Crude Prices

Chowdhury estimates there’s about 1.2 million barrels a day of refining capacity that’s still offline as companies both repair damages caused by the extreme weather and perform some usual spring maintenance.

The anomaly is sending physical crude prices to fresh lows. High-sulfur grades like Poseidon and Mars Blend are trading at the weakest differentials against New York oil futures since March 9. Heavy Louisiana Sweet crude is trading $1.40 above futures, the weakest discount since January.

Meanwhile, the margin for refining West Texas Intermediate crude produced in the Permian Basin is topping $10 a barrel, the highest since April last year, according to data published by industry consultants OILA.

Eventually, those higher margins will probably encourage refiners to bring back production as their inventories start to wane.

That would bring some welcome respite for U.S. crude producers, which have already recovered to pre-storm output levels and are contending with the low prices.

©2021 Bloomberg L.P.

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