Irving Oil's withdrawal of its offer for the 135,000 b/d Come by Chance, Newfoundland, refinery on Oct. 6 clouds the facility's future, but that uncertainty is unlikely to impact fuel markets along the US Atlantic Coast.
Irving had said on May 29 it would buy the refinery, which has been closed since March to mitigate coronavirus risk, at undisclosed terms. Newfoundland and Labrador's minister of industry, energy and technology, Andrew Parsons, said Silverpeak, which owns the refinery, was considering closing the plant completely.
"I'm not shocked that this happened," John Auers, executive vice president at Turner, Mason & Company said. "It's a bit of a relief to other refiners since the Atlantic Basin is still oversupplied."
More than 1 million mt of ULSD were reportedly kept in floating storage in Europe amid very high stock levels inland, lackluster demand and jet fuel blending into diesel. USAC diesel stocks sat at 58.35 million barrels the week ended Oct. 2, well above the five-year average at 44.35 million barrels, US Energy Information Administration data showed.
The USAC refining complex has changed substantially in the past year, beginning with an explosion at Philadelphia Energy Solution's 335,000 b/d refinery on June 21, 2019, which culminated in its closure on June 26 of that year. Diesel production on the USAC neared a nine-year low at 114,000 b/d the week ended Oct. 2, the lowest since the week ended Dec. 2, 2011, at 113,000 b/d, EIA data showed.
This, combined with the closure of Come by Chance, has led the USAC to look to other regions for diesel to make up some of the barrels lost, including Qatar and Italy, US Customs data showed.
Come by Chance exported 3.36 million barrels of ULSD to the Atlantic Coast in 2019, and 3.01 million barrels in 2018, according to US Customs data. Prior to closing, the refinery had exported 1 million barrels of diesel to the USAC this year.
Diesel flows from Europe increase
At least four clean tankers have been fixed to load ULSD in October from the Amsterdam-Rotterdam-Antwerp hub and bring it to the USAC, according to Kpler data. The ULSD arbitrage into the USAC typically opens in the winter, when heating demand is strongest.
"The US diesel markets are rather strong, and there is quite a lot of ULSD moving from ARA to the US," a trader said. "It's mostly [one player] doing it, but there are other people who are considering it in order to make some room, although on paper this arbitrage is not obvious."
ULSD coming off the Colonial Pipeline on the USAC hit a two-week high on Oct. 13 at NYMEX November ULSD plus 2.35 cents/gal, its highest level since Sept. 29 at futures plus 2.45 cents/gal.
"I don't see it as open," another trader said. "If there are barrels, it may be the case of moving them to where demand is regardless of the closed arbitrage if floating storage isn't paying."
Closure Changes Puerto Rico Flows
One consequence of Come by Chance shuttering was Puerto Rico's need to look elsewhere for diesel, as it relied on the facility for supply. Since Puerto Rico falls under the US Jones Act, which allows only US-flagged vessels to carry product between US ports, it is cheaper for the island to source barrels from non-US suppliers, despite its proximity to the Gulf Coast.
"It means Puerto Rico has to rely on Colombia more, but they already are," a US-based trader said.
In recent years, Come by Chance had been the largest diesel exporter to Puerto Rico, totaling 895,404 barrels in 2016 and 1.98 million barrels in 2017, US Customs data showed. Colombia gained the majority in 2018 and 2019, but Come by Chance was still the second-largest source of diesel.
Since the refinery's closure in March, Puerto Rico has pulled barrels from other regions, including Russia, India and Brazil. Since the end of April, Puerto Rico has imported 1.17 million barrels from all three countries combined, according to US Customs data.
