National Trends and Highlights $25.00

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1 April 3, 2017 Volume 2: Issue 14 U.S. Downstream Refinery Netback National Trends and Highlights Last week we wrote of this week s decline in processed crude prices as runs this week are based on purchases that occurred three weeks ago when surveyed prices had dropped to $45.30 per barrel. This is a healthy drop of $3.97 per barrel. We wrote that the market had begun to lose confidence not in the fact that OPEC and others were working toward global supply balance, but how long it would take to achieve this balance. Being an impatient lot, market participants began stacking bets that balance was a lot farther down the road than previously expected. This prevailing, although trailing, view of the market will continue to be reflected in our processed crude prices through mid April. At that time the market will take an abrupt change again that was brought about this week. $5.00 This week: $15.20 JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY U.S. Processed Crude Cost $60.00 $50.00 Two very powerful factors hit the refinery marketplace this week to create the largest one-week increase in downstream netbacks we have seen in National average margins rocketed higher by $5.54 per barrel marking the first visit north of $15 since visiting the territory on the way down in early January. The week-on-week change was a whopping %57.4 increase. The first factor was foretold last week as processed crude prices were set to decline. Paired with this was the second factor of increasing refined product revenues based on a global view of the market that may be changing. $40.00 $30.00 This week: $45.30 JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY After getting pummeled for about a month or so oil prices rallied last week to notch the largest weekly gain in about 4 months or so. Part of the gains were simply driven by short covering as the market was in an oversold technical condition coming into last week. In addition, the weekly EIA US oil inventory snapshot Last Week s Market Drivers (Continued on page 2) Oil prices were higher across the board last week with RBOB leading the complex higher. The market may have hit a short term turning point as the nearby fundamentals look slightly more positive while talk of extending the OPEC accord have put a more positive outlook on the longer term balances. The May Brent/WTI spread ended the week lower with Brent still trading at a modest premium to WTI. The May Brent/WTI spread narrowed by $0.60/bbl on the week. Brent is trading at a premium to WTI and is still a wide enough level to open the arb window for select US crudes to work in the export market. The spot May WTI contract increased on the week and is still trading in the lower technical trading range that has not been in play since November of last year. The May Brent contract also increased but less than the May WTI contract resulting in the May Brent/WTI contract narrowing $0.60/bbl. The May Brent/WTI spread remained in its current technical trading range last week. Both the HO and RBOB crack spreads were higher versus WTI for the week. The widely followed crack spread also widened last week driven by the RBOB component. (Continued on page 3)

2 National Trends cont d (Continued from page 1) was supportive as total combined stocks of crude oil and refined products declined for the second week out of the last three weeks. With the refinery maintenance season about over refiner demand for crude oil is likely to increase in the coming weeks which should result in inventories entering a normal seasonal destocking period. While it may not last, this supportive change of view caused refined product revenues to jump this week as well. Combined with our drop in processed crude prices cracks soared. Gasoline revenues leapt by nearly 10 cents moving up $.0939 to $ per gallon. The netback on motor gasoline products nationally rose to $20.18 per barrel. The $8.09 move represents a turn to the positive of 66.9%. Distillates saw great improvement as well with volume-weighted revenues reaching $ per gallon nationally. The $.0532 increase was enough to push distillate cracks to $18.45 per barrel. Looking below, PADDs 2,4, and 5 were all able to reach netbacks above the $15 level. The gulf states of PADDs 3 and 1C moved above $10 per barrel with only PADD 1 remaining in single digits. On the international front the unexpected shut down for several Libyan oil ports added another layer of short term bullishness even though this type of supply interruption could be short lived. Also there is a growing view that OPEC is more likely than not to extend the term of the production cut accord beyond the original six month term. Compliance has been high within OPEC and the participating non-opec members like Russia are approaching relatively high compliances levels also. Last week several members of OPEC indicated their support to extend the term of the accord. If compliance remains high by all participants it is very likely Saudi Arabia will push strongly for an extension and if they do the probability of the deal being extended will be very high. The spot Nymex WTI contract (on a continuation chart basis) is now slightly above the level prices we were at when the OPEC accord was signed back in November of last year. From a technical perspective the complex is showing the early signs of possibly forming a technical bottom and entering into at least a short term uptrend. All of the positives aside there are still headwinds that will have to be overcome in order for global supply and demand to move into a balanced positon and allow the massive overhang of inventories to enter into a sustained de- Downstream Refinery Netback By PADD stocking pattern. Higher prices are resulting in non-opec crude oil production to turn the corner and begin to rise. For example Reuters is reporting that Brazilian production is likely to increase this year after large investments in their upstream sector. The estimates suggest that Brazil s production could rise by about 210,000 bpd in $ $40.00 $35.00 $30.00 U.S. Downstream Gasoline Netback $5.00 This week: $20.18 $ A,1B 2 1C,3 4 5 This Week Last Week Last Month U.S. Downstream Distillate Netback $5.00 This week: $18.45 In addition to Brazil, US production is already in a sustained uptrend. On Friday Baker Hughes reported another increase in drill- (Continued on page 4)

3 Market Drivers cont d (Continued from page 1) The May WTI contract increased by 5.18 percent or $2.63/bbl last week as total US crude oil stocks increased less than expected. The May Brent contract increased by 4 percent or $2.03/bbl. On the distillate fuel front the Apr Nymex HO contract increased for the week by 5.07 percent or $0.0760/gal as distillate fuel inventories declined more than the market expectation. Gasoline prices increased after gasoline inventories declined more than expected on the week. The spot Nymex gasoline price increased by 5.94 percent or $0.0953/gal this past week. Nat Gas prices increased last week and remains in an upward trending channel. The increase in Nat Gas prices was primarily driven by lingering cold weather forecast. The spot May Nymex contract ended the trading week increasing by 1.17 percent or $0.037/mmbtu. On the financial front equity markets were higher for the week after decreasing during the previous week. The overall EMI Global Equity Index increased by 0.79 percent for the week with the year to date gain widening to 5.8 percent. Nine of the ten bourses in the Index remain in positive territory for Japan remains in the worst performer spot in the Index with Hong Kong still in the top spot with a 9.6 percent gain for the year. The positive value direction in global equity markets last week was a positive price driver for the oil complex. On the currency front the US dollar Index traded higher for the week with the Yen/USD and the Euro/USD lower. Overall the currency markets were a negative price driver for the oil complex last week. PADD Breakdown New York - Sunoco New York - Laurel New York - Buckeye New York - Barge Racks PADD 1A-1B Market Netbacks Group III - Phillips West Group III - Phillips East Group III - NuStar Group III - Magellan S. of Des Moines Group III - Magellan N. of Des Moines Group III - Explorer Minn/StPaul - Magellan Chicago - Wolverine Chicago - West Shore Chicago - Sunoco Chicago - Marathon Chicago - Magellan Chicago - Buckeye $8.05 $8.93 $9.10 $12.33 $2.00 $4.00 $6.00 $8.00 $12.00 $14.00 PADD 2 Market Netbacks $16.82 $16.88 $16.36 $15.05 $15.24 $14.01 $16.04 $14.94 $16.36 $15.87 $13.77 $15.41 $16.27 $4.00 $8.00 $12.00 $16.00 PADD 1A, 1B: The Mid-Atlantic and New England failed to break into double digits this week but margin improvement was huge nonetheless. The region added $5.65 per barrel to come in at an average $9.60. Singularly racks delivered by the Laural pipe did break into double digits at $ Gasoline pulled into the margin lead at $12.64 per barrel with distillates a close second at $ PADD 2: The heartland saw overall margins push higher by $6.49 per barrel attaining a regional average of $ With many players and a diverse span of economics, the players all drew within $2.87 of each other. On top were eastbound products moving on Phillip s line. Marathon barrels out of Chicago struggled the most at $13.77 but were still hughly profitable compared to last week. Minneapolis/St. Paul barrels jumped back into the lead among origination points at $16.04 per barrel. Group III originations from Tulsa came in second at $ Material moving from the Chicago complex earned an average $ (Continued on page 4) 3

4 Gulf Coast - Sunoco Gulf Coast - NuStar Gulf Coast - Magellan Gulf Coast - Florida Barge Gulf Coast - Exxon Gulf Coast - Explorer Gulf Coast - Enterprise Gulf Coast - Colonial to Greensboro Gulf Coast - Colonial N of Greensboro Gulf Coast - Barge Racks Gulf Coast - Atlanta Gulf Coast - Plantation Salt Lake City - Tesoro Casper/Sinclair - Phillips 66 Casper/Sinclair - Magellan Billings - Yellowstone San Francisco - SFPP PADD 1C,3 Market Netbacks Pacific NW - SFPP Pacific NW - Olympic/Barge Los Angeles - SFPP Los Angeles - CalNev $10.87 $12.24 $15.07 $10.96 $12.16 $13.62 $10.29 $10.28 $11.15 $12.76 $10.02 $11.50 $2.00 $4.00 $6.00 $8.00$12.00$14.00$16.00 PADD 4 Market Netbacks $19.13 $19.76 $22.46 $5.00 PADD 5 Market Netbacks $15.70 $17.82 $18.65 $18.33 $20.93 $5.00 (Continued from page 3) Gasoline gained favor here as well earning $19.83 per barrel ahead of distillates at $18.73 PADD 1C, 3: Gulf states were able to earn refiners $12.13 per barrel last week. This was a sizable improvement of $5.24. The Magellan line delivered the best results in the region averaging $ All pipes and barge routes earned refiners at least $10 with Atlanta squeaking by at $ Top to bottom there was a significant $5.00 spread among potential routes. Gasoline continued on top at $17.34 per barrel while distillates could be expected at $ PADD 4: The rocky mountain region pushed back above the $20 mark by 45 cents collectively. Leading the pack was material shipped on the Yellowstone line out of Billings where barrels returned $ Diesel continued on top with margins of $26.07 while gasoline saw returns of $23.22 per barrel. PADD 5: The west coast saw margins move up nearly 50% to reach $18.28 on average. A big turnabout was seen in the Pacific Northwest where barrels took the top spot at $20.93 in income if shipped on Kinder Morgan s SFPP line. CalNev barrels struggled the most but still topped $15. Gasoline income shot to $27.85 with diesel rising nicely as well to $19.31 per barrel. (Continued from page 2) ing rigs deployed to the US oil sector. Rigs increased by 10 new rigs or a 1.5 percent increase for the week. Total rigs deployed to the oil sector have now increased by 300 or 82.9 percent year over year. As shown in the chart to the right both oil rigs and US crude oil production bottomed about the middle of last year. Both have been in a sustained uptrend with total US crude oil production now higher by almost 700,000 bpd since the middle of October of All signs continue to suggest that US drilling and subsequently crude oil production will increase going forward. Non-OPEC crude oil production gains are going to continue to pressure OPEC to continue with a high compliance level as well as extend the term of the accord if they expect prices to move to higher levels. 4

5 Per Gallon Per Gallon $2.30 $2.10 $1.90 $1.70 $1.50 $1.30 $1.10 $0.90 $0.70 $0.50 U.S. Ex-Freight Gasoline Revenue (Volume-Weighted Rack less Pipe/Barge) This week: $ $2.30 $2.10 $1.90 $1.70 $1.50 $1.30 $1.10 $0.90 $0.70 $0.50 U.S. Ex-Freight Distillate Revenue (Volume-Weighted Rack less Pipe/Barge) This week: $ April 3, 2017 Semi-Variable Refining Cost Avg. Avg. Avg. API Processed Gasoline Diesel Gasoline Diesel Downstream Netback Netback Market Refining District Gravity Crude Price Crack/bbl Crack/bbl Yield Yield Per Gallon New York - Barge Racks East Coast $51.03 $11.28 $ % 29.43% $9.10 $ New York - Buckeye East Coast $51.03 $10.88 $ % 29.43% $8.93 $ New York - Laurel East Coast $51.03 $18.68 $ % 29.43% $12.33 $ New York - Sunoco East Coast $51.03 $9.72 $ % 29.43% $8.05 $ PADD I: $51.03 $12.64 $ % 29.43% $9.60 $ Chicago - Buckeye IN-IL-KY $41.44 $22.89 $ % 22.99% $16.27 $ Chicago - Magellan IN-IL-KY $41.44 $20.41 $ % 22.99% $15.41 $ Chicago - Marathon IN-IL-KY $41.44 $18.53 $ % 22.99% $13.77 $ Chicago - Sunoco IN-IL-KY $41.44 $20.98 $ % 22.99% $15.87 $ Chicago - West Shore IN-IL-KY $41.44 $23.02 $ % 22.99% $16.36 $ Chicago - Wolverine IN-IL-KY $41.44 $20.34 $ % 22.99% $14.94 $ IN-IL-KY AVG: $41.44 $21.03 $ % 22.99% $15.44 $ Minn/StPaul - Magellan MN-WI-ND-SD AVG: $41.47 $20.62 $ % 25.76% $16.04 $ Group III - Explorer OK-KS-MO $42.98 $16.98 $ % 36.14% $14.01 $ Group III - Magellan N. of Des Moines OK-KS-MO $42.98 $17.71 $ % 36.14% $15.24 $ Group III - Magellan S. of Des Moines OK-KS-MO $42.98 $17.27 $ % 36.14% $15.05 $ Group III - NuStar OK-KS-MO $42.98 $19.08 $ % 36.14% $16.36 $ Group III - Phillips East OK-KS-MO $42.98 $20.12 $ % 36.14% $16.88 $ OK-KS-MO AVG: $42.98 $18.23 $ % 36.14% $15.51 $ PADD II: $42.09 $19.83 $ % 28.70% $15.52 $ Group III - Phillips West Texas Inland AVG: $43.57 $20.15 $ % 28.64% $16.82 $ Gulf Coast - Plantation LA Gulf Coast AVG: $44.61 $17.39 $ % 31.54% $11.50 $ Gulf Coast - Atlanta TX Gulf Coast $45.57 $14.01 $ % 28.23% $10.02 $ Gulf Coast - Barge Racks TX Gulf Coast $45.57 $21.10 $ % 28.23% $12.76 $ Gulf Coast - Colonial N of Greensboro TX Gulf Coast $45.57 $16.82 $ % 28.23% $11.15 $ Gulf Coast - Colonial to Greensboro TX Gulf Coast $45.57 $14.70 $ % 28.23% $10.28 $ Gulf Coast - Enterprise TX Gulf Coast $45.57 $14.74 $ % 28.23% $10.29 $ Gulf Coast - Explorer TX Gulf Coast $45.57 $19.74 $ % 28.23% $13.62 $ Gulf Coast - Exxon TX Gulf Coast $45.57 $17.84 $ % 28.23% $12.16 $ Gulf Coast - Florida Barge TX Gulf Coast $45.57 $15.68 $ % 28.23% $10.96 $ Gulf Coast - Magellan TX Gulf Coast $45.57 $20.18 $ % 28.23% $15.07 $ Gulf Coast - NuStar TX Gulf Coast $45.57 $18.04 $ % 28.23% $12.24 $ Gulf Coast - Sunoco TX Gulf Coast $45.57 $ % 28.23% $10.87 $ TX Gulf Coast AVG: $45.57 $17.08 $ % 28.23% $11.77 $ PADD III: $45.34 $17.34 $ % 28.52% $12.13 $ Billings - Yellowstone Rocky Mountain $41.60 $25.71 $ % 34.52% $22.46 $ Casper/Sinclair - Magellan Rocky Mountain $41.60 $ % 34.52% Casper/Sinclair - Phillips 66 Rocky Mountain $41.60 $20.67 $ % 34.52% $19.76 $ Salt Lake City - Tesoro Rocky Mountain $41.60 $22.12 $ % 34.52% $19.13 $ PADD IV: $41.60 $23.22 $ % 34.52% $20.45 $ Los Angeles - CalNev West Coast $46.42 $22.81 $ % 20.57% $15.70 $ Los Angeles - SFPP West Coast $46.42 $26.62 $ % 20.57% $18.33 $ Pacific NW - Olympic/Barge West Coast $46.42 $29.87 $ % 20.57% $18.65 $ Pacific NW - SFPP West Coast $46.42 $33.56 $ % 20.57% $20.93 $ San Francisco - SFPP West Coast $46.42 $26.40 $ % 20.57% $17.82 $ PADD V: $46.42 $27.85 $ % 20.57% $18.28 $ Total $45.30 $20.18 $ % 28.35% $15.20 $0.3618

6 NOTES, DATA COLLECTION, AND ANALYSIS METHODOLOGY API Gravity: EMI surveys crude density data from refiner, government, and other sources then models a current monthly estimate by region. Light crudes generally exceed 38 degrees API; heavy crudes are typically 22 degrees or below; intermediate crudes fall between the 22 to 38 degree API gravity range. Processed Crude: EMI surveys private and international crude producer (IOC) price bulletins from U.S. and Canadian companies. In addition, national oil company (NOC) prices are surveyed from OPEC and non-opec countries. Prices are then averaged by region of origin and applicable pipeline or waterborne transportation costs are added to formulate a cost of crude delivered to specific refining districts expressed in US dollars per barrel. The Processed Crude price shown in each report is not the current price of crude and has been lagged approximately 22 days from the publication date. This is done to simulate the elapsed average transit, blending, and processing time between when a crude is purchased and ultimately refined. OpEx + D&A: EMI surveys SEC and self-reported financial documents to determine variable refinery operating expenses (OpEx) and depreciation and amortization (D&A) charges. These costs are grouped together by refinery complexity category, averaged across regions, and expressed in US dollars per barrel. Total Cost: Processed crude costs are added to variable refinery operating expenses and depreciation and amortization charges (OpEx + D&A) to arrive at a total cost of refining a barrel of crude. Gasoline Yield: EMI surveys the average percent of finished motor gasoline (all octanes) produced from refinery inputs as reported by refiner, government, and other sources. These values are modeled forward to create a current monthly estimate by region. Gasoline Revenue: EMI surveys and publishes wholesale/rack price assessments at hundreds of individual markets each day. This data can be purchased separately and is described in more detail here: Additionally, EMI surveys and publishes pipeline and barge transportation rate assessments on a monthly basis. This data can be purchased separately and is described in more detail here: emi.org/publication/emi-pipeline-barge-rate-assessments-annual-subscription/. The transportation cost of moving product from the refinery to the wholesale market is subtracted from the wholesale price to arrive at a net gasoline price. Lastly, EMI surveys and publishes weekly wholesale fuel volume assessments which can be purchased separately and is described in more detail here: EMI multiples the net gasoline price by the fuel volume assessment to arrive at volume-weighted gasoline revenues within specific regions. Prices are expressed in US dollars per gallon. Gasoline Crack/gal: Calculated by subtracting Total Cost from Gasoline Revenue expressed in US dollars per US gallon. This calculation is a 1-1 crack and assumes a theoretical 100% gasoline yield. Gasoline Crack/bbl: Calculated by subtracting Total Cost from Gasoline Revenue expressed in US dollars per 42-gallon barrel. This calculation is a 1-1 crack and assumes a theoretical 100% gasoline yield. Diesel Yield: EMI surveys the average percent of distillate fuel oil (on- and off-highway No. 1, No. 2, and No. 4 grade diesel) produced from refinery inputs as reported by refiner, government, and other sources. These values are modeled forward to create a current monthly estimate by region. Diesel Revenue: EMI surveys and publishes wholesale/rack price assessments at hundreds of individual markets each day. This data can be purchased separately and is described in more detail here: Additionally, EMI surveys and publishes pipeline and barge transportation rate assessments on a monthly basis. This data can be purchased separately and is described in more detail here: publication/emi-pipeline-barge-rate-assessments-annual-subscription/. The transportation cost of moving product from the refinery to the wholesale market is subtracted from the wholesale price to arrive at a net diesel price. Lastly, EMI surveys and publishes weekly wholesale fuel volume assessments which can be purchased separately and is described in more detail here: EMI multiples the net diesel price by the fuel volume assessment to arrive at volume-weighted diesel revenues within specific regions. Prices are expressed in US dollars per gallon. Diesel Crack/gal: Calculated by subtracting Total Cost from Diesel Revenue expressed in US dollars per US gallon. This calculation is a 1-1 crack and assumes a theoretical 100% diesel yield. Diesel Crack/bbl: Calculated by subtracting Total Cost from Diesel Revenue expressed in US dollars per 42-gallon barrel. This calculation is a 1-1 crack and assumes a theoretical 100% diesel yield. Downstream Netback Per Gallon: Gasoline Yield in each region is multiplied by Gasoline Revenue. The result is added to the Diesel Yield in each region multiplied by Diesel Revenue. Total Cost is subtracted from the resulting sum of the yield-weighted refined product revenues and expressed in US dollars per US gallon. Downstream Netback : Gasoline Yield in each region is multiplied by Gasoline Revenue. The result is added to the Diesel Yield in each region multiplied by Diesel Revenue. Total Cost is subtracted from the resulting sum of the yield-weighted refined product revenues and expressed in US dollars per 42- gallon barrel. Downstream Refinery Netbacks is published each week by the Energy Management Institute (EMI), 1324 Lexington Avenue, #322, New York, NY Copyright Reproduction without permission is strictly prohibited. Subscriptions: $1,195 per month. Editor in Chief: J. Scott Susich; Publisher: Stephen Gloyd; Contributing Editor: Dominick Chirichella. Information and opinions expressed in this publication are intended to provide general market awareness. All information is gathered from sources deemed reliable but accuracy is not guaranteed. EMI is not responsible for business actions, market transactions, or decisions made by its readers based on information published in this report. Readers of Downstream Refinery Netbacks use this information at their own risk. To participate as a source for any data in this report please contact EMI at or info@emi.org. 6