Valero sees strong refined product demand, tight supply ahead of travel season

Valero Energy sees the currently strong demand for gasoline, diesel and jet fuel increasing ahead of the peak summer travel season amid tighter supply and low inventories, CEO Joe Gorder said on April 27.

"Looking ahead, we expect refining fundamentals to remain supported by low global light product inventories, tight product supply and demand balances as we approach peak air travel and summer driving season," he said during the company's first quarter results call.

In March, Valero set a record of 998,000 b/d in wholesale sales of gasoline, jet fuel and diesel."In April, the volumes are trending right along those levels," said Gary Simmons, Valero's head of commercial operations.

"So far, our seven-day average in our wholesale system [show] gasoline sales are up 16% year over year. Our diesel volumes are up 25% year over year... so demand seems very strong in our system," he added.

Concerns over weakening diesel demand, given the startup in March of Valero's new 55,000 b/d coker at its Port Arthur, Texas, facility appear unfounded, Simmons said.

"We are just not seeing it....Today, there's domestic arbitrage... open from PADD 3 to PADD 2 as we are seeing a surge in agricultural demand that's going along with the planting season," he said, referring to distillate traveling from US Gulf Coast refineries to the Midwest.

Simmons said the arbitrage to ship distillate between the USGC and the US Atlantic Coast was also open."We see strong waterborne premiums to go to Latin America. And the transatlantic arbitrage is open to Europe. And so for us, distillate fundamentals look pretty good," he added.

"We still see diesel inventory [being] very, very low," he said.

Stress of low gasoline inventories

Low inventories of gasoline in the US are a concern as well, and nowhere is that more visible than along the USAC, with reports that some terminals in New England have run out of gasoline.

Energy Information Administration data shows that the region's inventories of finished motor gasoline and motor gasoline blending components for the week ended April 14 were at 11.3 million barrels and 11.22 million barrels, respectively, below the five-year averages of 62.7 million barrels and 59.5 million barrels, respectively.

Part of the reason for the shortage of gasoline and blending components in the USAC can be traced to the market structure which de-incentivized the storage of summer-grade gasoline and components in the New York Harbor and lower volumes coming in from Europe, due in part to the strikes at French refineries, Simmons said.

"Historically, we see the incentive to store summer-grade gasoline or components in New York Harbor. This winter, the market structure really made it so that it wasn't economical to do that," he said.

"So especially summer-grade gasoline is very tight, and it is going to stress the Colonial system as we move into driving season," he added.

Valero expects slightly lower refinery runs of 2.89 million b/d in Q2 compared with throughput of 2.3 million b/d in Q1.

Valero forecasts slightly lower refinery runs for Q2 than in Q1, when it ran at 93% of capacity, due to unspecified work at refineries in its North Atlantic and Mid-Continent regions. Valero did not discuss the scope of work planned at the Quebec City and Pembroke refineries in the North Atlantic or the work at its plants in Ardmore, Oklahoma; Memphis, Tennessee and McKee, Texas.

"We have a policy of not really commenting directly on our turnaround activity, but I would just take the guidance to be kind of where we think it's going to be," said Lane Riggs, Valero's president and chief operating officer.