U.S. Refineries to Run Lower Amid Regular Maintenance Period

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

Industrial Info Resources finds refinery maintenance in PADD 2, covering much of the Great Lakes region, could be one of the largest seasonally. That comes amid federal efforts to keep refiners running at full tilt.

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Fall Maintenance Lowers Refining Runs

Amid reports of U.S. administrative action to boost refinery output, Industrial Info Resources said it expects runs to decline as the fall maintenance season begins.

Citing sources familiar with talks, the Reuters news service reported last week that U.S. President Donald Trump was mulling how to use the Defense Production Act from 1950 to boost refinery throughput as conflict in the Middle East weighs on commodity prices. Enacted in response to the Korean War, the measure gives the president a wide berth in working to strengthen the production of goods for the sake of national security.

The issue is that refineries are already running at full tilt. Hillary Stevenson, a vice president for energy intelligence at Industrial Info Resources, found U.S. refineries were operating at 99.4% of their peak design capacity in August, the highest rate in at least 10 years for that time of year.

However, the fall maintenance season started in September, reducing rates. A weekly refinery report from IIR Energy found refinery outages were up 213,000 per day (bpd) week-on-week to average 450,000 bpd for the seven-day period ending September 11, due mostly to planned work. ExxonMobil was forced to close down its 250,000-bpd refinery in Joliet, Illinois, following a power outage on September 13, adding to the increase.

Furthermore, BP is undergoing planned maintenance at its 404,000-bpd refinery in Whiting, Indiana, on a unit that produces high-octane gasoline blendstock, adding more pain at the consumer level.

IIR Energy added in its report that it expected refinery outages to increase further over the coming weeks as more downstream operators begin regular fall maintenance.

"This year we are seeing the U.S. Midcontinent (PADD 2) have the biggest fall season for crude unit maintenance, with most work starting in September," Stevenson said Thursday. "A smaller amount of capacity is set for planned work along the U.S. Gulf Coast (PADD 3) beginning in October."

That maintenance coincides with the introduction of a winter blend of gasoline that's less expensive to make, and therefore cheaper for consumers -- and an administration - fretting over high prices at the pump. But with refineries in PADD 2 out of commission for the time being, travel club AAA reported retail prices in Illinois were up 6.6% from week-ago levels to average $4.78, while Michigan prices jumped 10.4% to average $4.75 per gallon.

By the Numbers

• 213,000 bpd week-on-week drop in refinery throughput
• 10.4% week-on-week increase in retail gasoline prices in Michigan

Global Issues, not Domestic, Causing Much of the Pain

And while refinery outages, both current and planned, impact the availability of supplies, and thereby the price at the pump, it's the price of crude oil that drives retail gasoline markets. Those prices are largely vulnerable to global issues, not the refinery.

Global crude oil prices are hovering above $100 per barrel, after starting September in the mid-$90 range, due to drone attacks on a key Saudi crude oil pipeline. Issues on the East-West crude oil pipeline are limiting what's available from a kingdom essentially trapped by ongoing tensions in the Middle East.

The pipeline avoids the Strait of Hormuz, but terminates on the Red Sea and is therefore vulnerable to attacks by the Houthi rebel group in Yemen. Federal U.S. data for the week ending September 11, meanwhile, show Iraqi crude oil imports are down 89% from year-ago levels, leaving U.S. refiners looking to the Americas for additional supplies.

With a U.S. oil deal giving the government in Washington, D.C., tremendous influence, imports from Venezuela are up 726% year-on-year, but represent only 2.6% of total deliveries. While both sides are in the midst of a bruising trade war, Canada remains the top exporter to the United States, delivering 4.3 million bpd over the seven-day period ending September 11, federal data show.

Key Takeaways

• Refinery runs are expected to move lower due to planned maintenance
• Crude oil prices, more than refinery runs, dictate consumer-level gasoline prices

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About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 trillion (USD).