US Midwest cracking yields supported by strong Chicago jet, gasoline

New York (Platts)--6Mar2014/516 pm EST/2216 GMT

Cracking yields have been driven lower across the US over the past two weeks on a drop in refined product prices, although Midwest yields have held up relative to other regions because of strength in Chicago jet fuel and gasoline prices, Platts data showed Thursday.

The relatively stronger yields, combined with access to discounted crude supply, have bolstered Midwest refining margins, while margins in other regions have drifted lower.

Platts margins reflect the difference between a crude's netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.

The cracking yield for Bakken crude on the US Atlantic Coast closed at $110.31/barrel Wednesday, down $11.60 from February 20, while the Bakken cracking yield on the West Coast closed at $111.59/b, down $10.49.

In contrast, the Bakken cracking yield on the Midwest closed at $118.78/b Wednesday, down $4.30 from February 20.

Bakken is regularly railed from North Dakota to USAC refiners, and small volumes are also railed to the USWC. Bakken is also piped to Midwest refiners at a much lower price, giving that location the best netback value. The Midwest Bakken netback at $117.93/b Wednesday was $21.62 above the USAC Bakken netback and $19.34 above the USWC netback.

The Midwest Bakken cracking margin at $23.40/b Wednesday compared with just $1.78/b on the USAC and $4.06/b on the USWC.

The Midwest netback premiums to the USAC and USWC have widened since February 20 largely on strength in Chicago refined product prices. Chicago spot conventional gasoline has risen the equivalent of $4.66/b since February 20, while conventional spot prices on the USAC have fallen $4.44/b, Platts data shows.

Likewise, the Chicago spot jet price has climbed nearly $3/b over that period, while Los Angeles jet has tumbled $8.45/b.

The higher Chicago gasoline and jet prices have compensated for a drop in ULSD prices. Chicago ULSD is commanding a smaller premium to gasoline -- $7.11/b Wednesday, down from nearly $20/b February 20 -- at a time when refiners are shifting to produce more gasoline. The Platts and Turner, Mason switched to summer yield formulas March 3 to reflect this shift, among other changes.

Midwest refiners are keeping runs high, likely lured by the strong refining margins. Runs were at 95.1% of capacity the week ending February 28, compared with 85% in the US Gulf Coast and 75.8% in the USAC, according to the US Energy Information Administration.

Midwest jet inventories at 7.27 million barrels were 8% below the five-year average, compared with USWC stocks at 10.37 million barrels 5% above the average.

Still, jet inventories appear tight on the USAC and USGC as well, although prices in those two regions are lagging behind Chicago. Spot price volatility is nothing new in the Chicago refined products markets, owing to the prompt timing of the assessments and thin trading. Chicago jet assessments Wednesday reflected March 5-14 barrels. USAC BAKKEN MARGINS AT DISCOUNT TO BONNY LIGHT

Bakken cracking margins on the USAC remain below cracking margins for Nigerian Bonny Light, opening the way for more imported African barrels. The Bonny Light cracking margin at $3.86/b Wednesday was down from $13.38/b February 20, but at a $2.08/b premium to the Bakken margin, Platts data showed Thursday.

The Bakken cracking margin flipped to a discount to the Bonny margin in late January, along with a narrowing of the WTI/Brent spread. Bakken is priced against WTI, and Bonny against Brent.

The Bakken price differential against WTI has widened in recent days, to a $6/b discount Wednesday from a $3.85/b discount February 28, but not enough to give Bakken the advantage. Output in North Dakota should rise soon as temperatures rise. North Dakota's production fell in December for the first time since January 2013 because of freezing temperatures, North Dakota Department of Mineral Resources data showed in late February.

Traders Monday said US refiners were buying more crudes from West Africa for March and April loading as cold weather in the US has impacted production.

The EIA's preliminary weekly data showed US imports from Nigeria at 158,000 b/d the week ending February 28, up from 9,000 b/d the week ending February 7. Imports from Angola climbed to 125,000 b/d from 12,000 b/d over the same period.

And total US rail movements of petroleum have fallen. According to the Association of American Railroads, 13,244 cars moved petroleum (which includes crude and products) the week ending March 1. That was down from 15,708 cars in mid-January, when the delivered Bakken crude price on the USAC was at a steeper discount to the delivered Bonny Light price. CANADIAN MARGINS OUTSHINE BAKKEN ON USWC

Small volumes of Bakken are regularly railed to USWC refiners, although Canadian imports offer a better margin due to the relatively lower spot crude price. The USWC Bakken cracking margin closed at $4.06/b Wednesday, compared with $19.40/b for Canadian Mixed Light Sweet.

According to the most recent data from the California Energy Commission, California railed in 87,079 barrels of crude from North Dakota in December, down from 165,296 barrels in September. Bakken crude is also making its way to California by marine vessel after being railed to the Pacific Northwest. In December 240,000 barrels were imported into California by water, the CEC data showed.

However, that pales in comparison to Canadian imports. Crude railed from Canada climbed to 709,014 barrels in December from 4,774 barrels in January 2013, the CEC data showed.

--Jeff Mower, jeff.mower@platts.com --Edited by Jason Lindquist, jason.lindquist@platts.com

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