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* Rebound in European demand, increased US production to widen spread
* Weak European demand in Q1 contributed to lower diesel exports
* Marathon expects to run cheap US crude at Galveston Bay refinery
By Kristen Hays
HOUSTON, April 30 (Reuters) - Marathon Petroleum Corp expects the narrowed spread between U.S. crude benchmark West Texas Intermediate and London's Brent crude to widen again, though not necessarily to the $20-plus level seen earlier this year, company executives said on Tuesday.
That spread, which surpassed $20 in February but has dropped below $10, has been a boon for refiners like Marathon with multiple plants in the U.S. Midwest that are in close proximity to cheaper U.S. inland and Canadian heavy crudes output.
On Tuesday, the spread between Brent and U.S. crude settled at less than $9 for the first time since December of 2011, and down from over $23 in February 2013. The spread moved between $10 and $13 for most of April.
Gary Heminger, chief executive of Marathon Petroleum, told Reuters in an interview that Europe's weak economy and a heavy refinery turnaround season depressed demand, pushing down Brent prices.
As those turnarounds wrap up, demand for Brent is expected to rise, pushing prices up relative to WTI, he said.
In addition, he said crude stocks at the U.S. crude futures hub in Cushing, Oklahoma, remain high at 51 million barrels, and that inventory will decline to some degree as pipeline projects increasingly come online and help relieve that glut.
Those include the startup this month of Magellan Midstream Partners' reversed Longhorn Pipeline, and Sunoco Logistics Partners LP upcoming startup of the first phase of its Permian Express West Texas-Nederland crude pipeline project. Both aim to move West Texas crude to Houston or southeast Texas that otherwise would be bound for Cushing.
Enterprise Products Partners' and Enbridge Inc's expanded Seaway Pipeline also is moving crude from Cushing to the Texas Gulf Coast.
But even with those projects and others, Heminger noted that U.S. production is expected to keep growing, particularly in Texas, North Dakota and the Gulf of Mexico as companies add infrastructure to move crude to refineries.
"We think you'll see the spread widen back out," Heminger said.
Weaker European demand contributed to lower diesel exports, as did competition from Motiva Enterprises' 600,000 barrels-per-day (bpd) refinery in Port Arthur, Texas, Mike Palmer, senior vice president of supply, distribution and planning, told analysts.
The company exported 121,000 barrels per day of diesel in the first quarter, down from 151,000 bpd in the fourth quarter of 2012.
"The market will dictate to us how much we actually export," Palmer said. "We continue to expect that exports are going to be a very important part of our business and we are very positive about exports going forward."
The company's 451,000 bpd Galveston Bay refinery in Texas City is part of that optimism for exports. Marathon closed on its $2.4 billion purchase of the refinery from BP Plc in February, and executives said they are formulating crude slates there.
Palmer said the refinery, which helped push the company's quarterly earnings up by 22 percent, has not yet run as much WTI-priced crude as Marathon's other six plants.
He said Marathon sees value in running foreign sweet cargo crudes, which is related to the aromatics business at the refinery. But the company is working to optimize its crude slate, and the Longhorn and Permian Express pipelines will help bring in those cheaper crudes.
"As domestic crude continues to grow, we expect that we are going to see that crude run by this plant," Palmer said.