U.S. Refiners Plan Cutbacks on Lower Margins

U.S. oil refiners are planning to reduce output during the third quarter amid falling margins as demand begins declining from its seasonal peak.

Bloomberg reported that Marathon Petroleum planned to reduce its capacity utilization rate to 90% at all its 13 refineries, which is down from 97% for the second quarter. PBF Energy was going to cut its processing rates to the lowest in three years.

Valero Energy would be reducing its operating rate from 3 million barrels daily to 2.86 million bpd. This is the lowest processing rate in two years. Phillips 66, for its part, was planning to cut processing rates to the low 90s in terms of capacity, which would be down from 98% in the second quarter—the highest in five years.

“Compressed refining margins are setting up the stage for another round of heavy refinery maintenance in the US during the fall season,” Vikas Dwivedi, global oil and gas strategist at Macquarie, told Bloomberg. “That’s going to weigh on balances and may add to crude builds in the US for the rest of the year.”

U.S. crude oil inventories have been declining for six weeks in a row now, suggesting healthy demand for fuels during peak driving season. However, as the summer ends, demand normally starts declining as well, motivating refiners’ adjustments in production.

Pressure on refining margins is an international concern in the industry, mostly because of China’s significant processing capacity, which has pressured margins elsewhere, even as Chinese refiners scale back on production.

According to Bloomberg NEF, global crude oil inventories are expected to swell by the end of the year despite the addition of new refining capacity, notably Nigeria’s Dangote refinery and Mexico’s Dos Bocas facility. The rise in crude oil stocks would come from production ramp-up in Guyana, according to Bloomberg’s energy forecaster.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com

• Is the Era of Explosive U.S. Shale Growth Over?
• Oil Rig Count Rises As WTI Jumps To $77
• Woodside Unlikely To Face Rival Bid in Deal for U.S. LNG Firm Tellurian