U.S. refiners bet on strong exports to balance market

Fri Apr 28, 2017 1:10am EDT
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By Jarrett Renshaw and Devika Krishna Kumar

NEW YORK (Reuters) - U.S. refiners have come out of maintenance season betting that big exports to Mexico and South America will help alleviate high product inventories and boost margins as the critical summer driving season nears.

The first wave of earnings results from several large independent U.S. refiners showed that they are not chasing U.S. gasoline profits, due to already high inventories and steady-but-not-spectacular demand. Instead, they are taking advantage of demand from places like Mexico and South America, where sputtering local refineries cannot meet customer needs.

Marathon Petroleum Corp (MPC.N: Quote), which just completed its largest-ever quarter of turnaround projects at its three Gulf Coast refineries, expects to process more crude than ever in the second quarter, the company said in its earnings release on Thursday.

"The export book continues to be strong," Marathon CEO Gary Heminger said Thursday, noting that he expects company exports to grow from about 200,000 bpd earlier this year to 300,000 bpd in the second quarter. It is expected to process about 1.82 million bpd in the second quarter.

Valero Energy Corp (VLO.N: Quote), the largest U.S. independent refiner by capacity, said it expected its 15 refineries to run up to 96 percent of their combined capacity of 3.1 million barrels per day (bpd) in the second quarter.

There is concern, however, that high run rates might exceed the ability of refiners to export products. U.S. gasoline inventories, which had been drawing down, have rebounded to uncommonly high levels for the season, sapping refining margins.

Jack Lipinski, CEO of CVR Energy Inc (CVI.N: Quote), said he fears a repeat of last year, when high inventories crushed margins. The company's two refineries are landlocked and have no direct access to export markets.

"Even though we are seeing exports increasing, the increase in production is offsetting that," Lipinski said on an earnings call Thursday.   Continued...

A Valero Energy Corp gas station is pictured in Pasadena, California October 27, 2015.  REUTERS/Mario Anzuoni