U.S. refiners face weakening demand at pump for first time in 5 years

Sun Feb 5, 2017 7:04am EST
 
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By Jarrett Renshaw

NEW YORK (Reuters) - U.S. refiners are facing the prospects of weakening gasoline demand for the first time in five years, stoking fears that earnings this year may be even worse than the dismal performances seen in 2016.

The sign of weakening U.S. gasoline demand comes as U.S. refiners are in the midst of reporting their worst year of earnings since the U.S. shale boom started in 2011. The oil boom turned to bust in 2014, and U.S. independent refiners reaped the profits as plunging pump prices and a growing economy helped fuel a surge in demand.

U.S. refiners amassed large inventories that punished margins last year, but record gasoline demand and robust exports helped provided a firewall against further slippage. Now the industry faces the prospects of higher crude prices following global production cuts and fresh federal data that suggests their gasoline demand safety net may be eroding.

“We are very cautious on refining margins, and on demand," Sarah Emerson, a managing principal at ESAI Energy LLC, said. "When oil prices goes up, gasoline demand is going to go down.”

The U.S. Energy Information Administration said Wednesday that the four-week average of gasoline supplied in the United States was 8.2 million barrels per day, lowest since February 2012. U.S. gasoline demand is closely watched by traders since it accounts for roughly 10 percent of global consumption. [EIA/S]

“It’s tough to base conclusions solely on the weekly data, which can be off significantly," said Mark Broadbent, a refinery analyst with Wood Mackenzie. "If the demand is low as it the data shows, then it’s a going to be real problem for refiners."

Gasoline use has grown every year since 2012, despite fears that demand has topped out amid the growth of fuel efficient cars, urbanization and a graying population.

Executives at independent U.S. refiners Marathon Petroleum Corp, Phillips 66 and Valero Energy Corp acknowledged the weaker-than-expected seasonal volume in earnings calls this past week, but said they anticipated strong demand to return. They said they expect production cuts in the U.S. Midwest and a busy spring refinery maintenance season to help trim inventories.   Continued...

 
A cyclist rides past a sign showing the prices of gas at a filling station in San Francisco, California July 22, 2015.    REUTERS/Robert Galbraith