US refiners plan cuts to lower margins

U.S. oil refiners plan to cut output during the third quarter amid shrinking margins as demand begins to ease from a seasonal peak.

Bloomberg reported that Marathon Petroleum plans to reduce its capacity utilization rate to 90% at all 13 refineries, down from 97% for the second quarter. PBF Energy was to cut its processing rates to the lowest in three years.

Valero Energy would cut its operating rate from 3 million barrels per day to 2.86 million barrels per day. This is the lowest processing rate in two years. Phillips 66, for its part, planned to cut processing rates to the low 90s for capacity, which would be down from 98% in the second quarter – the highest in five years.

“Compressed refining margins set the stage for another round of heavy US refinery maintenance during the fall season,” Vikas Dwivedi, global oil and gas strategist at Macquarie, told Bloomberg. “This will affect balances and could add to the build-up of U.S. crude for the rest of the year.”

U.S. crude oil inventories fell for a sixth straight week, suggesting healthy demand for fuel during the peak season. However, as the summer ends, demand normally begins to decline as well, prompting refiners to adjust production.

Pressure on refining margins is an international concern in the industry, particularly because of China’s significant processing capacity, which has pressured margins elsewhere even as Chinese refiners cut output.

According to Bloomberg NEF, global crude inventories are expected to rise by the end of the year despite the addition of new refining capacity, notably Nigeria’s Dangote refinery and Mexico’s Dos Bocas facility. The increase in crude stocks would come from increased production in Guyana, according to Bloomberg’s energy forecaster.

By Irina Slav for Oilprice.com

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