US refining margins down in first quarter 2016
According to a recent report from Baker & O'Brien, US refining margins have fallen in 1Q 2016 compared to 4Q 2015. As table below shows, the average refining margin in all Petroleum Administration for Defense Districts (PADDs), with the exception of PADD 3, was below the prior quarter. The downward pressure on margins was due primarily to weaker distillate prices, high refinery run rates, product inventory builds, and unseasonably warm weather.
| 1Q 2016 vs. 4Q 2015 | 1Q 2016 vs. 1Q 2015 | |
| PADD 1 | -2.73 | -6.25 |
| PADD 2 | -5.54 | -9.87 |
| PADD 3 | 0.97 | -1.41 |
| PADD 4 | -6.88 | -6.98 |
| PADD 5 | -3.46 | -6.40 |
| US Overall | -1.64 | -4.60 |
When 1Q 2016 results are compared to 1Q 2015, refining margins were substantially lower for all PADDs, with the greatest declines in PADDs 2 and 4. Over the last year, improved pipeline logistics have severely curtailed the crude oil cost advantage enjoyed by inland refiners--especially those processing Bakken crude oil--as the West Texas Intermediate (WTI) vs. Bakken price differential narrowed significantly from a year ago.
The US Gulf Coast (USGC) Louisiana Light Sweet (LLS) crude 3-2-1 crack spread was down $1.15/bbl compared to the previous quarter. However, this downward trend was even more apparent in the Chicago market, where the WTI 3-2-1 crack spread was over $5/bbl below the prior quarter. These declines reflected weak distillate margins, as gasoline margins continued to be comparatively strong. As a result, most refiners are maximizing gasoline production over distillate production.
According to the latest data from the US Federal Highway Administration, vehicle miles traveled have increased 21 months in a row beginning in May 2014 through February 2016. The resulting strong gasoline demand has resulted in much firmer gasoline prices relative to distillate.
Compared to the prior quarter, the 1Q 2016 LLS/Maya crude oil price differential declined only slightly ($0.11/bbl). As a result, USGC coking refiners enjoyed relatively strong firm margins compared to the last quarter of 2015.
| March 2016 |
1Q 2016 | 4Q 2015 | 2015 Annual |
2014 Annual |
|
| WTI | 37.82 | 33.33 | 42.10 | 48.68 | 93.10 |
| LLS | 40.11 | 35.19 | 43.56 | 52.33 | 96.74 |
| Brent | 38.49 | 33.92 | 43.68 | 52.40 | 98.91 |
| LLS/Maya | 10.64 | 9.10 | 9.21 | 8.27 | 11.01 |
| USGC LLS (3-2-1)* | 9.80 | 8.95 | 10.10 | 14.70 | 12.12 |
| USGC LLS (6-3-2-1)** | 5.14 | 4.95 | 6.08 | 10.15 | 8.05 |
| Chicago WTI (3-2-1)*** | 14.42 | 10.08 | 15.21 | 21.06 | 19.05 |
*LLS deemed conversion to 67% conventional 87R gasoline and 33% ULSD
**LLS deemed conversion to 50% conventional 87R gasoline, 33% ULSD and 17% fuel oil
***WTI deemed conversion to 33% conventional 87R gasoline, 33% RBOB and 33% ULSD
Additional information on this report can be viewed on Baker & O'Brien's US Prism Newsletter at www.bakerobrien.com.
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