18 Aug 2023 | 20:08 UTC

US West Coast refined products prices elevated as Hurricane Hilary approaches

Highlights

Hilary expected to weaken to tropical storm

Potential flooding poses 'medium risk' to USWC output

Los Angeles gasoline, diesel prices spike

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US West Coast spot refined products prices remained elevated Aug. 18 ahead of the arrival of Hurricane Hilary, which could impact refinery operations in Southern California.

The National Hurricane Center's most recent forecast was calling for Hilary to weaken into a tropical storm before hitting Southern California late Aug. 20.

But potential flooding from the storm poses a "medium risk" to roughly 355,000 b/d of Southern California gasoline production and 196,000 b/d of distillate production, according to S&P Global Commodity Insights analysts.

Production losses could further elevate gasoline and diesel prices, which have rallied on tight supplies and refinery outages.

Los Angeles gasoline differentials spiked to 9-month highs Aug. 17, with sources citing maintenance at PBF Energy's 160,000 b/d Torrance, California refinery. Sources also pointed to news that Marathon Petroleum expected to begin flaring at its 363,000 b/d Carson, California refinery on Aug. 20.

Platts, a unit of S&P Global, assessed Los Angeles CARBOB at NYMEX September RBOB plus 45 cents/gal Aug. 18, down 13 cents on the day, but up from a 32.25 cents/gal premium on Aug. 14.

Platts assessed Los Angeles CARB diesel at a 42.5 cents/gal premium to NYMEX ULSD Aug. 18, up 2.5 cents on the day, and up from a 9 cents/gal discount in early June.

Prices have risen as USWC inventories have tightened. USWC diesel stocks at 10.4 million barrels the week ended Aug. 11 were 11% below the five-year average, widening from an 8% deficit in early June, US Energy Information Administration data shows.

Similar diesel price trends have been seen outside of the USWC, with strong demand outstripping supply. US Atlantic Coast stocks, for instance, at 28.5 million barrels the week ended Aug. 11 were 35% below the five-year average, EIA data shows.

Global refinery downtime has fallen to roughly 4 million b/d, the lowest level so far in 2023, but is expected to rise in September as fall maintenance kicks in.

As of Aug. 11, USWC refiners were operating at 91.6% of capacity, according to the EIA. With inventories already tight, any impact to USWC refinery operations from the storm would likely impact arbitrage flows, according to S&P Global analysts.

"While little direct refined product trade exists between the West and Gulf Coasts, refined product prices between the regions are linked as both markets compete for export share in Pacific Latin America. As a result, impacts to refinery operations on the West Coast could potentially increase the call on exports from the Gulf Coast to supply markets along Pacific Latin America," the analysts said in a report.

Area refiners were monitoring the storm Aug. 18.

"We have comprehensive plans and procedures in place at all our facilities to protect our employees and assets, nearby communities, and the environment during severe weather. We have been implementing those measures at our locations on the West Coast that might be affected by the upcoming storm," Marathon Petroleum company spokesperson Jamal Kheiry said in an Aug. 18 email.

"Phillips 66 closely monitors tropical storms or hurricanes days before they are projected to enter the area. We are monitoring the storm. There is no impact to refinery operations at this time," said company spokesperson Al Ortiz in an Aug. 18 email.


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