In a
recent weekly petroleum report, the US Energy Information Administration
(EIA) noted that US refineries are running at near-record levels.
The four-week average of gross domestic refinery inputs surpassed 18
mill barrels per day for the first time since the EIA started publishing
this data in 1990. The last time refinery inputs approached 18 mill
barrels per day was in the week of 25th August, 2017 - the week before
Hurricane Harvey made landfall, Poten & Partners said in a comment.
The US economy is currently running on all cylinders and GDP growth
reached an annual rate of 4.1% in the second quarter, which is driving
domestic product demand up, in particular for gasoline and distillate
fuel oil, which (combined) count for almost 75% of domestic refinery
output.
Exports of refined petroleum products are strong as well. Refined
product exports (which includes LPGs and Pet Coke) have more than
tripled over the last ten years, from an average of less than 1.8
million b/d in 2008 to 5.5 million b/d in 2018 year-to-date and the
upward trend shows no sign of slowing down. Do these increases in
activity have a noticeable impact on product tanker employment and
rates?
Refinery inputs are seasonal and typically peak in the summer. Refinery
maintenance increases in the spring when refiners are retooling their
facilities to make summer gasoline. The same happens in the fall when
they switch back to winter grades.
For many years, US refining capacity expansions were limited to
capacity creep, ie, small increases in distillation capacity due to
minor de-bottlenecking within existing facilities (often during
maintenance turnarounds).
However, since 2011, US refinery capacity has increased by 862,000
barrels per day, partly due to the commissioning of four small new
facilities (mostly condensate splitters) in Texas and one in North
Dakota.
Motiva significantly expanded its refinery at Port Arthur and Valero
did the same with its Corpus Christi facility. Some idled capacity has
been brought back on line as well. In short, US refineries are in good
shape, especially those on the Gulf Coast. They have access to surging
light tight oil production, as well as abundant Canadian barrels. Due to
the ample availability of shale gas, they also enjoy low energy costs.
So, have these positive dynamics for refinery runs and product exports
translated into increased demand and higher rates for product tankers?
Yes and no. Yes, there is more demand for product tankers to move
increasing volumes of products to Europe, Latin America and Asia.
However, the rates for product tankers do not reflect these higher
levels of activity. Indeed, rates during the first six months of this
year have been the lowest since 2014.
Except for the fourth quarter, when rates typically go up, there are no
obvious seasonal patterns in this market. Although product tanker rates
have been rather disappointing so far this year, that should not come
as a big surprise. The product tanker market is a global market and
significant deliveries of MRs (the vessel of choice in these trades)
during 2014-2016 created significant overcapacity that the markets are
still trying to work off.
Projected deliveries for the remainder of this year and 2019 are less
than in previous years and if tonne/mile demand continues to grow, the
outlook for the product market is rather positive. The shift towards low
sulfur bunker fuels in 2020 represents a significant wild card.
This change may create dislocations in the marine fuels markets and
therefore additional employment opportunities for product carriers,
starting in the second half of 2019. In the US, refinery output is
expected to continue to grow faster than domestic demand and the outlook
for refined product exports is therefore bullish, Poten & Partners
said.
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