Fitch: Lack of Distillate Uplift Tests US Refiner Profitability

CHICAGO & NEW YORK--(BUSINESS WIRE)-- An oversupplied distillates market will continue to weigh on overall US refiner profitability, according to Fitch Ratings. The absence of winter heating demand has increased the importance of the driving season and gasoline margins to maintain refiner momentum in 2016.

Lack of winter heating oil demand has pushed distillate inventories above 160 million barrels (bbl) as of early April versus historical averages of less than 130 million bbl, according to recent EIA data. With little incentive to produce additional distillates, some US refiners switched over early to gasoline, leading to an unseasonable build in gasoline inventories. As a result, gasoline stocks were moderately overbuilt but have since seen supportive draws. As of early April, they stood at 244 million bbl but were a more moderate 24.3 days of implied inventory when scaled against underlying demand.

Over the longer term, pressures remain on gasoline in the form of unfavorable environmental regulations, including rising renewable fuels mandates, higher mandatory fuel (CAFE) standards and greenhouse gas emissions regulations, although the recent skew in auto sales toward SUVs, crossovers and light trucks should help offset this somewhat.

Crack spreads contracted notably from last year's strong levels. Benchmark Gulf Coast 321 crack spreads in first-quarter 2016 were about 40% below year-ago levels, averaging $9.16/bbl versus $15.37 in 2015. Midcontinent crack spreads were down a comparable level, while NYH 321 spreads fell a more moderate 21%, having experienced less of a run-up in prior years. Key crude spreads have dropped sharply lower in line with lower oil prices, removing a windfall for midcontinent and other location- advantaged refiners. This includes the Brent-WTI spread, which has averaged $2.60/bbl versus a five-year average of over $11/bbl, and a WTI-WTS spread, which averaged just $0.12/bbl versus a five-year average of $4.30/bbl).

We are expecting to see a modest reflation in spreads as oil prices rise, although they are unlikely to return to levels seen over the past few years given that the crude export ban has been lifted.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

U.S. Refining Dashboard (April 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=880190

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160413005878/en/

Fitch Ratings
Mark C. Sadeghian, CFA
Senior Director
Corporates
+1 312-368-2090
Fitch Ratings
70 West Madison Street
Chicago, IL
or
Brad Bell
Associate Director
Corporates
+1 312-368-3149
or
Kellie Geressy-Nilsen
Senior Director
Fitch Wire
+1 212-908-9123
33 Whitehall Street
New York, NY
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Eight Japanese ships depart Hormuz via passage near Iran
• Pluristyx Inc. Secures Initial Close of Series A Priced Round with Multinational Fortune 500 Company; Round to Remain Open for Syndicate Partners Until September 2nd
• Libra Energy Appoints Ty Minnick as Chief Financial Officer