In contrast, the US Gulf Coast Louisiana Light Sweet cracking and Mars coking margin each gained roughly $3/b to $7.05/b and $8.14/b, respectively.

Platts refining margins reflect the difference between spot crude assessments and netbacks. Netbacks are based on Platts spot product assessments and crude yield formulas developed by Turner, Mason and Company.

Jet and distillate crack spreads have been boosted in the Gulf and the Midwest, primarily by gains in the underlying NYMEX heating oil contract. With frigid temperatures and winter storms moving across the US, demand for heating oil has risen, especially on the Atlantic Coast, the key consuming area and home of the New York delivery point for the NYMEX contract.

But the winter storms were also reportedly slowing demand for diesel and jet, through reduced driving and flight cancellations. A rally in Gulf Coast jet price differentials last week was actually blamed on lower run rates as refiners in the area cut back because of the unusually cold weather.

Demand is hardly stellar for jet or distillates, according to the US Energy Information Administration. Distillate demand the week ending February 4 at 3.682 million b/d was below the five-year average of 4.176 million b/d.

Keep in mind that the distillate demand figure includes both heating oil demand and diesel demand, and stock levels reflect softer demand for lower sulfur grades. Combined LSD and ULSD stocks in the US reached an all-time high 125.7 million barrels.

USAC heating oil stocks at 28.9 million barrels were 12.13% below the five-year average, the EIA data showed.

US jet demand at 1.465 million b/d the week ending February 4 was higher on the week, but on a four-week moving average was lower for the third week in a row.

But the really poor demand readings were seen in gasoline--all that snow and ice has done wonders for conservation, although you wouldn't know it from living in New York, where the beeping of horns has been replaced by the spinning of tires.

US demand at 8.524 million b/d the week ending February 4 was not only below the five-year average, but below the five-year low for that week.

As a result, gasoline crack spreads have weakened on the Gulf Coast, helping to dampen yields, and thus margins, for LLS. The USGC conventional gasoline crack spread against LLS fell to minus $1.45/b February 4 from $4.54/b on January 21. By Tuesday, the spread had recovered somewhat to plus $1.37/b.

As an aside, despite the negative gasoline crack, LLS yields are outperforming Brent yields on the Gulf Coast. The LLS cracking yield was at roughly a $3/b premium to the Brent yield on Tuesday, up from a $2/b premium on January 1. That's because LLS yields a comparatively higher percentage of jet and diesel, and Brent a higher percentage of money-losing gasoline.

But the percentage is minor, and gasoline still makes up the bulk of the slate. Refiners can increase their yields of distillate and jet by only so much. If they continue to increase runs, more gasoline will reach a market currently driven by high supply and low demand.

With pipelines stemming out of the region, Gulf refiners are not dependent on Gulf product prices, but even on the Atlantic Coast gasoline inventories have been rising for weeks.

Lest you think Cushing, Oklahoma would not come up--how could it not lately?--strong Midwest margins owe a great deal to a wide WTI contango, the result of high inventories at the delivery point.

WTI is certainly not a "broken benchmark" for any refiner able to run it or other similar local crudes (the relatively high cost of Gulf and imported sweets negates the contango advantage).

Midwest crude inputs climbed for the fourth straight week to 3.446 million b/d the week ending February 4, according to the EIA, exceeding the five-year high for this time of year.
Gulf Coast crude runs at 7.077 million b/d were down from the fifth week in a row, from 7.812 million b/d at the end of December.

Recent refining margin gains have been driven largely by the weather, and the NYMEX heating oil basis could easily tumble once temperatures climb, dragging margins along with it. But high crude stocks at Cushing should continue to provide a cushion against such a fall for Midwest refiners.

 

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