US refiners see strong Q4 earnings continuing into 2023 as turnarounds increase

US refiners are expected to report elevated earnings for Q4 2022, which are spilling over into 2023 as demand remains healthy amid anemic inventories that are expected to fall on heavier-than-2022 turnarounds, an analysis from S&P Global Commodity Insights showed Jan. 25.

"Refiners are looking at an excellent Q4 '22 thanks to extremely robust diesel cracks, widening heavy crude differentials, improving WTI market structure, and positive capture rate factors," said Matthew Blair, analyst with Tudor Pickering Holt, in a Jan. 23 pre-earnings research note.

"Overall, a tight product inventory picture and relatively low refinery utilization has helped boost our RVO-adj US avg 3-2-1 index [by plus] $3 to [$27/b], with gasoline and diesel both climbing [plus $3/b]," he said.

According to weekly US Energy Information Administration data, US refiners ran at 91.73% in the fourth quarter of 2022, with utilization for US Gulf Coast refiners averaging over 93% of capacity. Refineries in the US Atlantic Coast averaged over 96% of capacity in Q4, despite a turnaround at Delta Air Lines' Monroe Energy refinery in Trainer, Pennsylvania, during the quarter.

However, so far in Q1 2023, total US refinery utilization is averaging 83.4%, with USGC plants running at 83.6% of capacity due to a late-December/early January cold snap which shut plants, with some refiners moving up work planned for later in the quarter.

On the USAC, Phillips 66 moved up a major 60-day turnaround on its Bayway refinery to start on Jan. 21 instead of February after the cold weather impacted operations, which is likely to lower the region's almost 91% of refinery utilization so far in Q1.

More turnarounds expected

Many US refiners delayed or rearranged their turnaround schedules as a result of the coronavirus pandemic in 2020. The pandemic delayed turnarounds to prevent spread of the virus, and then as demand began to recover, many refiners looked to rising margins as a way to recoup some of the losses posted during the pandemic.

Mike Jennings, CEO of HF Sinclair, said on a Nov. 7 Q3 results call the company has a "little higher maintenance in terms of planned turnarounds" for 2023 compared to 2022.

Delek US said it did not have any turnarounds in 2022 at any of its four refineries across Texas, Louisiana and Arkansas, but the company expects a major turnaround at its 75,000 b/d Tyler, Texas, refinery sometime in the first half of 2023.

Along the USGC, planned work is already underway at several major facilities, including ExxonMobil's 520,000 b/d Baton Rouge, Louisiana, refinery, with USGC refinery utilization for the week ended at 87.7% of capacity, most recent EIA data shows.

Diesel concerns remain as Russian ban looms

US distillate stocks remain about 20% below the five-year average, with the US Atlantic Coast bearing the brunt as inventories are about 27% below the five-year average, EIA data shows. During Q4, several diesel and gasoline distributors reported outages at their terminals, especially in the Middle Atlantic and New England states, due to turnarounds not only at Monroe's Trainer but at Irving's Saint John, New Brunswick, plant – the mainstay suppliers of New England.

However, the question looming over the global distillate market is what will happen with Russian diesel when the Feb. 5 ban on Russian products goes into effect.

"We are seeing an increase in clean products out of Russia February loaders," said Richard Joswick, head of oil analytics at S&P Global Commodity Insights.

"It looks like they are trying to push the barrels as quickly as possible. Get it out of Russian tanks and into European tanks."

Commodity data tracker Kpler showed that in December the three-month average of European gasoil imports from Russia was 186,000 b/d, with volumes rising in the week beginning Jan. 16 to 220,000 b/d.

Europe's historical dependence on Russian diesel will force buyers there to turn elsewhere for supply once the ban goes into effect. US diesel exports to Europe have fallen to average 211,000 b/d in December as buyers turned to Russian barrels, Kpler data shows.

And US January diesel imports into Europe have fallen further as Russian imports rose to an average of 65,000 b/d, including an unusual cargo from PBF's USAC Delaware City, Delaware, heading to the Netherlands.

Gasoline stronger than expected

Gasoline also has held its value, despite the onset of the winter shoulder season when demand usually weakens.

"On the product crack side, diesel has been very strong," Joswick said. "Gasoline was relatively weak relative to diesel but still is strong relative to history and to crude. So, gasoline is still quite healthy here."

Gasoline demand fell slightly over the past week – down 1.4% for the Jan. 15-20 week, according to data from GasBuddy, which tracks retail gasoline sales across the US and Canada, with the Rockies region down 8.3% following winter storms.

However, for the week ended Jan. 20, EIA data shows gasoline demand was at 8.14 million b/d, up about 88,000 b/d higher than the previous week, but lagging 2022 levels by 3.3%