Refiners along the US Gulf Coast "left money on the table" by performing much-needed seasonal maintenance this winter, giving up profits from exports during a period of substantially higher diesel crack spreads, RBN Energy analyst Sandy Fielden said Friday.
"Effectively, Gulf Coast refiners sacrificed good diesel and gasoline crack margins during January and February 2013 in order to perform essential maintenance work," Fielden said in a note. "The immediate impact was to reduce the production of both gasoline and diesel and that meant less of these products were available for export."
US refined product exports fell to 2.331 million b/d in January, down 663,000 b/d from December, according to data released by the US Energy Information Administration at the end of March. Distillate exports fell 249,000 b/d, to 774,000 b/d, during the same time, the lowest level for US distillate exports since June 2011.
Refiners had been increasing production of distillates, in particular diesel, to take advantage of export demand to Latin America and a strong crack spread, Fielden said. The relationship between production, exports and cracks pushed Gulf Coast refinery utilization to 95% towards the end of 2012.
Fielden noted Gulf Coast diesel crack spreads to Louisiana Light Sweet crude have been persistently strong, averaging just under $16/barrel in 2013, down only slightly from the average for 2012.
"Last year, the Gulf Coast diesel crack averaged about $16.75/b, making it a big money earner for regional refineries," Fielden said, noting that comparatively, gasoline cracks were also strong, averaging around $9/b in 2012.
"You would expect that continued healthy crack spreads and a buoyant export market would ensure that Gulf Coast refiners would keep pumping out gasoline and diesel at the same rate in 2013 that they did in 2012," he said.
But Gulf Coast refinery utilization rates plummeted during the early part of 2013, falling to 80.6% of capacity at the end of February.
"Although turnarounds are planned ahead of time and occur during periods of lower demand, the scale of reduced diesel output during the first quarter of 2013 meant that some part of the market would have to make do with less," Fielden said. "And in this case it appears that the victim was exports -- at least for diesel and to a lesser extent for gasoline."
Fielden said that with crack spreads still strong, refiners will likely seek to ramp up production now that seasonal maintenance is behind them.
"Refiners left money on the table, but they cannot avoid maintenance and so they have to swallow such periods of lower returns on their high tech refinery investments," he said. "With the winter now over, refiners look to the summer driving season to make up for lost time."
