Refiner HollyFrontier doesn't see output cuts despite weak margins
(Reuters) HollyFrontier Corp. said it does not expect to cut production of refined products, contrasting comments made by its rivals, who expect refiners to process less crude in response to a gasoline glut that is eroding margins.
Crack spreads 1RBc1-CLc1, the difference between the prices of crude oil and refined products, have narrowed sharply due to a spike in US inventories of refined products.
HollyFrontier reported a lower-than-expected profit on Wednesday, hurt by weak margins.
"I don't expect us to have economic run cuts," Chief Executive George Damiris said on a post-earnings call. "I think that's going to be more of an East Coast phenomenon where the Bakken barrel doesn't fit anymore."
Refiners on the East Coast typically tend to have thinner margins than their rivals elsewhere, and some of them have already clipped production.
HollyFrontier, on the other hand, has historically enjoyed strong margins due to the proximity of its six refineries in the western and the central United States to prolific shale fields.
The company plans to run its six refineries up to 96% of their combined capacity of 467 Mbpd in Q3, compared with 96.7% in Q2.
"I think we have good competitive position from both the crude supply and product distribution perspective," Damiris said.
But the buildup in inventories also weighed on HollyFrontier's Q2 gross margin, which fell to $8.88/bbl produced, from $17.42 a year earlier.
Refiners Phillips 66 and Valero Energy Corp. said last week they expect the industry to process fewer barrels of crude in the second half of the year.
Valero does not have refineries on the East Coast. Phillips 66 has one, in Linden, New Jersey.
HollyFrontier said it incurred $57 M in costs during the quarter to comply with the US Environmental Protection Agency's Renewable Fuel Standard program, which requires refiners to blend more renewable fuel, or buy paper credits.
Reporting by Amrutha Gayathri and Manish Parashar in Bengaluru; Wrting by Swetha Gopinath; Editing by Maju Samuel
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