Atlantic Basin refining margins soar on refinery outages, tight diesel supply

Atlantic Basin refinery margins are rising back toward record levels set earlier this year, spurred higher by refinery outages and French refinery strikes, an analysis from S&P Global Commodity Insights showed Oct. 17.

"Ongoing strikes at three [French] refineries have increased the country's call on product imports at a time of refinery turnarounds in Europe, boosting prices," according to S&P Global analysts Lenny Rodriguez and Rebekah Foley.

"This situation led to ARA (Amsterdam-Rotterdam-Antwerp) ULSD cracks to surge to $80/b on Oct. 13, with jet and gasoline cracks at $52/b and $36/b, respectively," they wrote in an Oct. 17 research note.

These higher cracks pulled up margins. Northwest Europe cracking margins for Dated Brent averaged $23.11/b for the week ended Oct. 14, up from the $19.77/b the week earlier, S&P Global margin data showed.

However, gains are limited by persistent high natural gas prices which are weighing on margins by increasing operating expenses. Refiners reliant on natural gas to power their plants are seeing margins about $7/b lower than refiners who use high sulfur fuel oil.

Despite French strikes, Northwest European export volumes of clean products are averaging 2.62 million b/d so far in October, according to commodity tracker Kpler, topping the 2.587 million b/d of exports seen in all of September.

While some volumes are heading to other parts of Europe, including Western Europe, Finland and the UK as well as the US and Africa, so far in October about 128,000 b/d are heading to France, up from the 104,000 b/d for the total month of September.

USAC margins buoyed by refinery outages

US Atlantic Coast cracking margins for Dated Brent averaged $30.69/b for the week ended Oct. 14, excluding RINs, up from the $26.83/b seen the week earlier but below $60.38/b reached in May 2022 when tight gasoline supplies pushed up consumer prices over the $5/gal mark.

Higher margins are due in part to lower output from area refineries and low inventories. Most recent data from the Energy Information Administration puts USAC distillate stocks at 25.6 million barrels for the week ended Oct. 7, well below the five year average of 48.4 million barrels.

Lower inventories are due in part to planned work underway at Irving Oil's 330,000 b/d Saint John, New Brunswick, refinery which is expected to last until Nov. 6, reducing supply available for the New England states. Further south, Monroe Energy is finishing up planned work on a crude unit its 190,000 b/d Trainer, Pennsylvania.

Dated Brent gasoline cracks averaged $20.55/b for the week ended Oct. 14, according assessments from Platts, S&P Global, with ULSD and jet cracks averaging $96.35/b and $90.11/b, respectively.

The tightness in the diesel market is expected to continue as the weather gets colder in the northern hemisphere.

"Margins should stay very healthy in coming months as heating oil season keeps distillate cracks strong, reinforced by low gasoil stocks and backwardation, while gasoline cracks reap support as refiners maximize diesel output," said Rodriguez and Foley.