REFINERY MARGIN TRACKER: USGC distillate exports rise as Colonial Pipeline flows slow

US Gulf Coast margins are being supported by diesel exports as strong global demand continues to push more product into Latin America and away from US markets, an analysis from S&P Commodity Insights showed on May 2.

Exports from Russia, a traditional supplier of gasoil and diesel, have been waning due to a busy turnaround season as well as the impact of the war and sanctions on the Russian economy, thus forcing global diesel buyers to find another source.

PBF CEO Tom Nimbley noted the changes in import and export balances on US supply during the company's April 28 results call, pointing out that the US Atlantic Coast is bearing the brunt of the increased exports.

"We've had a couple of weeks here with Line 2 – Colonial Pipeline Line 2 has not been allocated. It is traditionally always allocated," he said, referring the pipeline's main distillate line which runs from the US Gulf Coast to Linden, New Jersey.

For the past two weeks, Platts assessments showed space on Line 2 trading at minus1 cent/gal compared with the minus 0.35 cent/gal in Q1.

US distillate inventories are tight -- 27 million barrels below the 5-year average -- standing at 107.3 million barrels for the week ended April 22, according to most recent Energy Information Administration data.

US Atlantic Coast inventories are particularly tight – at 24.7 million barrels, the region's lowest level since 1996, due in part to the lack of supply coming up the Colonial as well as a drop in European exports.

Regional margins have jumped on low supply. USAC margins for Saharan Blend are averaging $54.57/b for the week ended April 29, compared with the $36.53/b the week earlier.

While transporting distillate from the USGC to the USAC requires more expensive Jones Act vessels, demand for these tankers is expected to be well-supported throughout the summer, according to one Jones Act tanker owner, who noted "we are seeing good levels of enquiry from our customer base looking out well into Q3" especially as spreads widen.

According to Platts price assessments, USAC ULSD prices were holding a 60.65 cent/gal premium over USGC ULSD export barrels for the week ended April 29, compared with the 41 cents/gal premium the week earlier.

USGC export demand increases as Russian production wanes

Despite the jump in the spread between USAC and export diesel barrels, USGC distillate exports remain strong.

"The reason for that is because the United States has become the marginal supplier of an export barrel in the wake of cutbacks in Russian production and the inability of Russia to supply markets in the US," PBF's Nimbley said.

"And in Latin America, on the margin, the United States is now supplying the distillate exports, particularly ULSD, net exports out of the Gulf Coast and the country have been very high," he added.

USGC Castilla coking margins are averaging $38.87/b for the week ended April 29, compared with the $31.11/b the week earlier, S&P Global margins shows.

According to export data from commodity tracker Kpler, exports of middle distillates – which include ULSD and jet – jumped to average 1.148 million b/d in April, up from the 1.056 million b/d in March, with the majority going to Latin American and Caribbean countries.

Russian middle distillate exports, which averaged 1.1 million b/d in February, fell to 943,000 b/d in March and 868,000 b/d in April, Kpler data showed.

While Russian crude oil exports appear to be finding homes in China and India, Russian refined product exports are falling due to lower refinery runs at its refineries.

"Run cuts and idled units tied to the Russia-Ukraine conflict and its negative effects on product demand have increased overall downtime to record levels," according to S&P Global.

S&P Global analysts estimate the Russian refinery outages in March increased by 600,000 b/d compared with February, reaching 1.10 million b/d for the month. A similar jump is expected in April, bringing total downtime to 1.73 million b/d, with May refinery outages at 1.8 million b/d.

"Both domestic product demand and product export demand are sliding due to effects of the war on the Russian economy as well as sanctions on Russian oil exports to other countries," said S&P Global analysts in their monthly Global Refining Outlook.