June 5, 2017 Volume 2: Issue 21 National Trends and Highlights U.S. Downstream Refinery Netback The turnabout in crude values came with a $2.20 hike in processing costs this past week. This increase is the result of purchases made the week of May 12 when sentiment turned toward the bullish end of the spectrum. Favorable comments regarding OPEC/Non-OPEC production cut extensions surfaced in the pre-meeting environment at the time. This began a trend of rising prices which will continue to impact refinery netbacks for the next several weeks. The average national processed crude cost rests at $45.93. This price is derived from a multitude of sources from domestic and foreign sources. Crude purchase prices are gathered from the origin and then netted to the refinery by the addition of pipe and waterborne transportation costs. This week: $13.31 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC U.S. Processed Crude Cost $60.00 $55.00 $50.00 The downside of our whipsaw netback line emerged this week following the three to five week reversal pattern that has been in place since the late March OPEC agreement. The move has been earmarked by diverging directions of crude and products. For nearly ten weeks the market has struggled to land on a definitive consensus of direction relative to the fundamentals. The refining complex averaged $13.31 per barrel in income nationwide as of Friday. This marks a reduction of $2.77 from the $16.08 the industry was earning the prior week. $45.00 $40.00 $35.00 This week: $45.93 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC As has been the case and an underlying component of the whipsaw pattern, refined product revenues are currently in decline along with present crude price trends. Gasoline revenues declined by an even 2 cents per gallon from last week. Nationally, refiners could expect revenues of $1.6569 per gallon netted back to the refinery gate. This number excludes taxes and trans- Last Week s Market Drivers (Continued on page 2) Oil prices declined modestly last week after increasing during the previous week. Oil prices are well below the highs hit around the middle of April and are currently trading toward the lower end of the range set between the mid-april high and the low hit in early May. This week the refined product contracts led the way lower with crude oil prices not far behind. The August Brent/WTI spread ended the week lower with Brent but is still trading at a modest premium to WTI. The August Brent/WTI spread narrowed by $0.38/bbl on the week. Brent is trading at a premium to WTI and is now only marginally wide enough to keep the arb window slightly open for select US crudes to work in the export market. The spot July WTI contract declined on the week and moved into a lower technical trading range last week. The August WTI contract followed a simper path as the July contract. The August Brent contract also decreased and greater than the August WTI contract resulting in the August Brent/WTI contract narrowing $0.38/bbl. The August Brent/WTI spread remained in its current technical trading range last week. The HO and RBOB crack spreads were lower versus WTI for the week. Both the RBOB and HO crack spreads depreciated versus WTI on the week. The widely followed 3-2-1 crack spread also narrowed last week driven by the RBOB component. (Continued on page 3)
National Trends cont d (Continued from page 1) portation and is volume-weighted by market. The decline in revenue was mirrored by a decline in gasoline netbacks as measured by the 1-1 gasoline crack. That number declined by $3.06 per barrel to end up at $17.70 per barrel nationally. On the distillate front, #2 diesel revenues declined at more than double the rate of gasoline dropping $.0464 per gallon to a national average of $1.6324. Distillates netted back to the refinery gate produced $16.67 per barrel of income. Although the oil complex ended last week with a modest decline there are some early signs that the inventory situation could possibly be in the very early stages of changing while OPEC in particular Saudi Arabia increased the level of trying to jawbone the market price higher. US inventories declined strongly last week with total US crude oil stocks declining for the eight week in a row. In fact, since peaking in the third week of March total US crude oil stocks as reported by the EIA are lower by 25.6 million barrels. A similar pattern is also in play for total combined stocks of crude oil and refined products as can be seen in the chart below. The destocking pattern in the US is a very good U.S. Downstream Gasoline Netback $35.00 This week: $17.70 U.S. Downstream Distillate Netback $35.00 This week: $16.67 Downstream Refinery Netback By PADD 1A,1B 2 1C,3 4 5 This Week Last Week Last Month sign for the bulls as well as for all of the producers participating in the OPEC production cut accord. It should provide a bit of encouragement for the efforts they are making to bolster oil prices. In addition, in a Reuter s article over the weekend they reported the Saudi Energy Minister Khalid al-falih said further oil output cuts could be needed in the future and that OPEC and other leading producers would assess the market situation in July. A committee set-up to monitor the production cuts is set to meet and report in Russia in July. He went on to say if some reason we need to do more, we will consider doing more including. bigger cuts. The US upstream sector continues to be an issue for OPEC and the participants in the OPEC production cutting accord. Oil rigs deployed to the US oil sector remain in a sustained uptrend along with US shale production. In fact, on Friday Baker Hughes reported another increase in drilling rigs deployed to the US oil sector. Oil rigs increased by 11 new rigs or a 1.52 percent increase for the week. Total rigs deployed to the oil sector have now increased by 417 or 132 percent year over year. 2 As shown in the following chart 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 (Continued on page 4)
Market Drivers cont d (Continued from page 1) The July WTI contract decreased by 4.28 percent or $2.13/bbl last week while the August WTI contract lost $2.18/bbl or 4.36 percent even as total US crude oil stocks decreased greater than the market expectations. The August Brent contract decreased by 4.88 percent or $2.56/bbl. On the distillate fuel front the July Nymex HO contract decreased for the week by 5.25 percent or $0.0822/gal as distillate fuel inventories increased versus the market expectations for a draw. Gasoline prices decreased even after gasoline inventories decreased more than the market expectations. The July Nymex gasoline price decreased by 3.01 percent or $0.0490/gal this past week. Nat Gas prices decreased strongly last week and moved into a new lower technical trading range. The decrease in Nat Gas prices was primarily driven by a lack of summer like temperatures in the last week s short term weather forecasts that were projecting the lower demand shoulder season to last for at least several more weeks. The spot July Nymex contract ended the trading week decreasing by 9.4 percent or $0.311/mmbtu. On the financial front equity markets were mixed after gaining ground during the previous week. The overall EMI Global Equity Index decreased by 0.23 percent for the week with the year to date gain narrowing to 6.7 percent or around the level it was at the end of April. All ten bourses in the Index remain in positive territory for 2017. China has now moved into the worst performer spot in the Index with Hong Kong still in the top spot with a 17.8 percent gain for the year. The negative value direction in global equity markets last week was a negative price driver for the oil complex. On the currency front the US dollar Index traded lower for the week with the Yen/USD and the Euro/USD higher. Overall the currency markets were a positive 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 $8.23 $9.42 $9.60 $10.44 $2.00 $4.00 $6.00 $8.00 $12.00 PADD 2 Market Netbacks $12.47 $13.69 $13.07 $11.96 $11.62 $13.14 $12.02 $12.09 $12.76 $11.49 $11.84 $12.31 $4.00 $8.00 $12.00 $16.00 PADD 1A, 1B: Barge delivered racks were the only mid-atlantic locations that managed to keep returns in the double digits. Those barrels averaged $10.44. Laurel and Buckeye delivered racks were seen in the $9.50 range while barrels carried by the Sunoco line dropped below $9 to $8.23 per barrel. Netbacks on gasoline barrels averaged $12.89 and distillate production returned $11.73 as of Fridays analysis. PADD 2: Margins for Midwest refiners had topped $15 per barrel last week but have since slid by $2.95 ending at $12.36 this period. Netbacks were clustered tightly with less than $2.10 separating the high and low. $13.69 was the high end of the market for eastbound barrels on Phillip s line. Marathon delivered barrels out of Chicago held down the low end at $11.49. Holding with the narrow spread among pipe routes, origin spreads were narrow as well. Group III averaged at the top of trio with returns of $12.66. Chicago barrels were at $12.10 and originations out of Minneapolis/St. Pauls $12.02. (Continued on page 4) 3
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 Pacific NW - Olympic/Barge Los Angeles - CalNev (Continued from page 2) PADD 1C,3 Market Netbacks Pacific NW - SFPP Los Angeles - SFPP $11.62 $11.01 $11.35 $9.15 $9.80 $11.32 $9.36 $9.01 $9.08 $8.96 $10.80 $9.40 $2.00 $4.00 $6.00 $8.00 $12.00 $14.00 PADD 4 Market Netbacks $18.74 $20.06 $22.90 PADD 5 Market Netbacks $9.51 $10.87 $13.43 $16.63 $19.35 crude oil production now only 290,000 bpd below the peak hit around the middle of 2015. 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. (Continued from page 3) Refined product flipped around with gasoline on top at $16.47 and diesel at $13.82 per barrel.. PADD 1C, 3: Refinery netbacks kept their head above $10 by only $.26 in the gulf states region last week. Sunoco carried barrels were the best performers at $11.62 per barrel, while barge locations brought up the bottom at $8.96. The spread between high and low was 30% of value which was stronger than other east-of-rockies markets. Unleaded gasoline margins stood at $14.68 per barrel. Following behind were distillates averaging $13.41. PADD 4: The Rocky region continued to stay atop the $20 mark averaging $20.57. Tesoro deliveries topped out of Salt Lake at the $22.90 level. Distillates really held value giving refiners $27.71 per barrel of margin. Gasoline products trailed by more than $4.00 at $23.34 per barrel. PADD 5: Margins on the west coast could best be described as sporadic based on the sub region. As a group the area averaged $13.96 per barrel but that was misleading. Pacific northwest barrels were on the low side averaging about $10.25 between barge and pipe. San Francisco was way out in front on netbacks at $19.35 per barrel. Los Angeles deliveries on the SFPP were at $16.63. Regionally gasoline margins remained above $20 at $21.12 while #2 distillates were at $16.68. Despite the increased US production, the market may be in the early stages of a return to global balance as we discussed before. If this macro trend should begin to formally materialize, it would put an end to the whipsaw pattern that has been in play and establish a longer term trend. For now we will continue to expect a continuation of the short-term downtrend in netbacks started two weeks ago. 4
Per Gallon Per Gallon $2.05 $1.90 $1.75 $1.60 $1.45 $1.30 $1.15 $1.00 U.S. Ex-Freight Gasoline Revenue (Volume-Weighted Rack less Pipe/Barge) This week: $1.6569 $0.85 $2.05 $1.90 $1.75 $1.60 $1.45 $1.30 $1.15 $1.00 U.S. Ex-Freight Distillate Revenue (Volume-Weighted Rack less Pipe/Barge) This week: $1.6324 $0.85 June 5, 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 30.59 $49.67 $14.90 $12.00 46.76% 28.93% $10.44 $0.2485 New York - Buckeye East Coast 30.59 $49.67 $12.78 $12.54 46.76% 28.93% $9.60 $0.2286 New York - Laurel East Coast 30.59 $49.67 $12.56 $12.27 46.76% 28.93% $9.42 $0.2244 New York - Sunoco East Coast 30.59 $49.67 $11.33 $10.11 46.76% 28.93% $8.23 $0.1958 PADD I: 30.59 $49.67 $12.89 $11.73 46.76% 28.93% $9.42 $0.2243 Chicago - Buckeye IN-IL-KY 31.40 $44.48 $16.87 $14.63 51.43% 24.85% $12.31 $0.2931 Chicago - Magellan IN-IL-KY 31.40 $44.48 $16.67 $13.17 51.43% 24.85% $11.84 $0.2820 Chicago - Marathon IN-IL-KY 31.40 $44.48 $14.82 $15.58 51.43% 24.85% $11.49 $0.2736 Chicago - Sunoco IN-IL-KY 31.40 $44.48 $17.99 $14.13 51.43% 24.85% $12.76 $0.3038 Chicago - West Shore IN-IL-KY 31.40 $44.48 $16.52 $14.44 51.43% 24.85% $12.09 $0.2878 Chicago - Wolverine IN-IL-KY 31.40 $44.48 $15.10 51.43% 24.85% IN-IL-KY AVG: 31.40 $44.48 $16.57 $14.51 51.43% 24.85% $12.10 $0.2881 Minn/StPaul - Magellan MN-WI-ND-SD AVG: 29.60 $44.42 $16.73 $13.91 50.43% 25.77% $12.02 $0.2862 Group III - Explorer OK-KS-MO 36.89 $44.74 $17.92 $11.88 50.64% 34.15% $13.14 $0.3127 Group III - Magellan N. of Des Moines OK-KS-MO 36.89 $44.74 $14.77 $12.13 50.64% 34.15% $11.62 $0.2768 Group III - Magellan S. of Des Moines OK-KS-MO 36.89 $44.74 $15.24 $12.41 50.64% 34.15% $11.96 $0.2848 Group III - NuStar OK-KS-MO 36.89 $44.74 $16.36 $14.01 50.64% 34.15% $13.07 $0.3112 Group III - Phillips East OK-KS-MO 36.89 $44.74 $17.27 $14.47 50.64% 34.15% $13.69 $0.3259 OK-KS-MO AVG: 36.89 $44.74 $16.31 $12.98 50.64% 34.15% $12.70 $0.3023 PADD II: 33.54 $44.59 $16.47 $13.82 51.02% 28.80% $12.36 $0.2944 Group III - Phillips West Texas Inland AVG: 40.20 $45.14 $17.04 $13.74 50.06% 28.70% $12.47 $0.2970 Gulf Coast - Plantation LA Gulf Coast AVG: 30.64 $44.02 $11.78 $15.08 41.61% 29.86% $9.40 $0.2239 Gulf Coast - Atlanta TX Gulf Coast 31.82 $46.27 $17.06 $12.40 40.08% 31.95% $10.80 $0.2571 Gulf Coast - Barge Racks TX Gulf Coast 31.82 $46.27 $13.08 $11.63 40.08% 31.95% $8.96 $0.2132 Gulf Coast - Colonial N of Greensboro TX Gulf Coast 31.82 $46.27 $13.32 $11.70 40.08% 31.95% $9.08 $0.2162 Gulf Coast - Colonial to Greensboro TX Gulf Coast 31.82 $46.27 $12.53 $12.49 40.08% 31.95% $9.01 $0.2146 Gulf Coast - Enterprise TX Gulf Coast 31.82 $46.27 $13.17 $12.77 40.08% 31.95% $9.36 $0.2228 Gulf Coast - Explorer TX Gulf Coast 31.82 $46.27 $17.45 $13.54 40.08% 31.95% $11.32 $0.2696 Gulf Coast - Exxon TX Gulf Coast 31.82 $46.27 $13.61 $13.59 40.08% 31.95% $9.80 $0.2332 Gulf Coast - Florida Barge TX Gulf Coast 31.82 $46.27 $12.70 $12.71 40.08% 31.95% $9.15 $0.2179 Gulf Coast - Magellan TX Gulf Coast 31.82 $46.27 $15.26 $16.37 40.08% 31.95% $11.35 $0.2701 Gulf Coast - NuStar TX Gulf Coast 31.82 $46.27 $17.04 $13.09 40.08% 31.95% $11.01 $0.2622 Gulf Coast - Sunoco TX Gulf Coast 31.82 $46.27 $16.83 $15.26 40.08% 31.95% $11.62 $0.2766 TX Gulf Coast AVG: 31.82 $46.27 $14.73 $13.23 40.08% 31.95% $10.13 $0.2412 PADD III: 32.37 $46.01 $14.68 $13.41 40.96% 31.54% $10.26 $0.2442 Billings - Yellowstone Rocky Mountain 32.45 $44.03 $24.57 $26.68 45.77% 33.06% $20.06 $0.4777 Casper/Sinclair - Magellan Rocky Mountain 32.45 $44.03 $18.60 45.77% 33.06% Casper/Sinclair - Phillips 66 Rocky Mountain 32.45 $44.03 $21.38 $27.08 45.77% 33.06% $18.74 $0.4461 Salt Lake City - Tesoro Rocky Mountain 32.45 $44.03 $28.81 $29.38 45.77% 33.06% $22.90 $0.5452 PADD IV: 32.45 $44.03 $23.34 $27.71 45.77% 33.06% $20.57 $0.4897 Los Angeles - CalNev West Coast 28.24 $45.37 $20.04 $16.82 51.07% 19.00% $13.43 $0.3197 Los Angeles - SFPP West Coast 28.24 $45.37 $25.84 $18.04 51.07% 19.00% $16.63 $0.3959 Pacific NW - Olympic/Barge West Coast 28.24 $45.37 $13.79 $12.97 51.07% 19.00% $9.51 $0.2264 Pacific NW - SFPP West Coast 28.24 $45.37 $15.33 $16.02 51.07% 19.00% $10.87 $0.2589 San Francisco - SFPP West Coast 28.24 $45.37 $30.61 $19.56 51.07% 19.00% $19.35 $0.4606 PADD V: 28.24 $45.37 $21.12 $16.68 51.07% 19.00% $13.96 $0.3323 5 Total 31.44 $45.93 $17.70 $16.67 47.12% 28.27% $13.31 $0.3170
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: https://emi.org/publication/wholesale-fuel-price-assessments/. 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: https:// 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: https://emi.org/publication/gasoline-diesel-fuel-volume-assessments/. 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: https://emi.org/publication/wholesale-fuel-price-assessments/. 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: https://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 diesel price. Lastly, EMI surveys and publishes weekly wholesale fuel volume assessments which can be purchased separately and is described in more detail here: https://emi.org/publication/gasoline-diesel-fuel-volume-assessments/. 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 10128. Copyright 2017. 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 888 871-1207 or info@emi.org. 6