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US oil refiners cut run-rates to lowest level in two years

Credit: REUTERS/NICK OXFORD

By Erwin Seba

HOUSTON, Feb 21 (Reuters) - U.S. oil refiners this quarter have extensive outages that will cut overall plant utilization rates to the lowest levels in the past two years, according to executive comments and analysts' forecasts.

The industry has been running nearly full-bore since 2022 when travel and fuel demand rebounded from depressed COVID-19 levels. The high run-rates and relatively stable oil prices have been a boon for industry profits.

But a series of unplanned mishaps and extensive maintenance has hampered throughput this year and led to a draw on fuel inventories. In this year's first six weeks, utilization has slipped to about 86% of the 18.3 million barrels per day (bpd) in national capacity, according to government estimates.

Top U.S. independent refiner Marathon Petroleum MPC.N is planning to run its 13 refineries at about 83% of their 2.9 million barrels-per-day (bpd) capacity. That is down from 91% in the final quarter of last year.

"We are executing turnarounds at four of our largest refineries," John Quaid, finance chief, told analysts during a January conference call. The extensive maintenance schedule is timed to coincide with seasonally lower demand, he said.

Other plant operators, including a large Midwest BP PLC plant and a TotalEnergies TTEF.PA U.S. Gulf Coast refinery, also suffered unplanned outages due to power or weather conditions. Motiva Enterprises MOTIV.UL recently completed a monthlong overhaul at its Port Arthur, Texas, plant, the nation's largest.

The first quarter “is shaping up as an extremely heavy turnaround period for U.S. refiners, which should reduce product inventories and support margins,” said Matthew Blair, refining analyst at financial firm Tudor Pickering Holt & Co.

Continued strong annual demand for motor fuels has raised utilization levels above what the industry can reasonably deliver, Timothy Go, chief executive of Dallas-based oil refiner HF Sinclair DINO.N, said on Wednesday.

"We think demand overall is 5% to 6% above 2019 levels" prior to the COVID downturn, Go said during a conference call with Wall Street analysts. "The utilization requirement in order to make up for that additional demand is just higher than what this industry has been able to demonstrate in the past."

During the past two years refinery utilization has ranged between high-80% to low-90%, with lowest production in the first and fourth quarters of 2022 and 2023, according to an analysis of EIA data by Reuters.

During the COVID-19 pandemic in 2020 and 2021, U.S. refining capacity fell by 1 million bpd. Plant expansions since then have reduced that deficit to about 666,000 bpd, according to Energy Information Administration data and Reuters reporting.

While run rates are hitting bottom this quarter, the second quarter will likely see a bounce back.

“We’re getting close to the bottom in this quarter,” said John Auers, managing director of Refined Fuels Analytics. “For the second quarter, we should be in the low 90s.”

BP Whiting, Indiana refinery to be shut up to three weeks -sources https://www.reuters.com/business/energy/bp-whiting-indiana-refinery-be-shut-up-three-weeks-sources-2024-02-07/

US crude stockpiles rise, products draw down as refining slumps -EIA https://www.reuters.com/business/energy/us-crude-stockpiles-rise-products-draw-down-refining-drops-eia-2024-02-14/

(Reporting by Erwin Seba; editing by Jonathan Oatis)

((erwin.seba@thomsonreuters.com; +1 832 746 4269; Reuters Messaging: erwin.seba.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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