Release date: November 4, 2020 | Next release date: November 12, 2020
U.S. refinery runs remain lower than the five-year average in most regions
Gross inputs to U.S. refineries, also referred to as refinery runs, have been lower than the five-year (2015-19) average since April, when responses to the 2019 novel coronavirus disease (COVID-19) reduced demand for refined products such as gasoline, distillate fuel, and jet fuel. Since the end of August, the continued effects of the pandemic in the United States and in crucial destinations for U.S. petroleum exports in Europe and Latin America, in addition to seasonal factors, have resulted in continued lower refinery runs. The sustained lower runs throughout 2020 combined with relatively low crack spreads—an approximate indication of the profitability of refining based on the relative values of gasoline, distillate, and crude oil—have resulted in several announced refinery closures in the United States and abroad.
In April, substantial declines in U.S. domestic demand for jet fuel and motor gasoline resulted in a significant reduction in U.S. refinery operations, including reduced refinery inputs and corresponding reductions in refined product outputs (Figure 1). The economic effects of the pandemic drove the decline in diesel demand, which began largely in May. Since May, demand for some products, particularly gasoline, has increased somewhat but remains below historical levels. Beginning in June and July, some refiners began increasing their refinery throughputs in response to the uptick in demand, although crack spreads have remained weaker than the historical average. Many refiners adjusted their refining processes to adapt their product yield to the changing needs of the market.
Since mid-July, refinery inputs have remained between 13% and 17% lower than the five-year average. Gross inputs to refineries reached 15.3 million barrels per day (b/d) in the week ending August 21, the highest level since the COVID-19 crisis began in April, according to the U.S. Energy Information Administration’s (EIA) Weekly Petroleum Status Report. The August high point was still down about 14% compared with the five-year average. During the following two weeks, refinery inputs decreased almost 2 million b/d to 13.4 million b/d by the first week of September, and they were down about 16% against the five-year average. Since then, runs have remained lower than their July and August levels, averaging a little more than 14.0 million b/d through October 23, with each week somewhere between 13% and 17% below the five-year average for the same period. Although the decrease in gross inputs between the first week of August and October 23 remains at a little less than 1.1 million b/d, this decrease is partially consistent with seasonal factors, resulting in a relatively stable gap between 2020 input levels and the five-year average.
The overall decrease in refinery runs has varied by U.S. Petroleum Administration for Defense District (PADD) (Figure 2). The U.S. East Coast (PADD 1) experienced a particularly severe decline against the five-year average, down as low as 50.8% in mid-April. The decrease in refinery runs on the East Coast are partly the result of the Philadelphia Energy Solutions (PES) refinery closure in June 2019. PES was the largest refinery on the East Coast and it was indefinitely closed after a large explosion. East Coast refinery inputs have been down about 25% compared with the five-year average as early as in January 2020, before the COVID-19 outbreak had had any substantial impact on the U.S. fuels market. As a result, year-on-year changes to East Coast refinery inputs reflect multiple factors that extend beyond the impact of COVID-19 on regional refiners.
Because of responses to the pandemic, refiners in the Midwest (PADD 2) experienced a decrease in refinery inputs as low as 21.1% from the five-year average, but the region has since gradually closed that gap. Since the week ending October 9, Midwest refiners have seen refinery inputs rise to levels slightly higher than the five-year average. Gasoline inventories in the Midwest returned to levels near the five-year average in July, and distillate inventories did the same in mid-September. Midwest refiners primarily supply local demand, and the stabilization of regional inventories and a seasonal uptick in distillate demand from the harvest season have helped to boost conditions for refiners in the Midwest during the fall 2020 season.
The U.S. Gulf Coast (PADD 3) accounts for the largest share of U.S. refinery capacity. The Gulf Coast also accounts for the largest share of total U.S. decline in runs. In percentage terms, the Gulf Coast’s refinery gross input fell the most from the five-year average during the week of May 29 at 18.4% (Figure 3). Since then, the Gulf Coast remained down 10% or more throughout the summer. In August, Gulf Coast gross inputs fell from about 8.2 million b/d (11.3% lower than the five-year average) during the week ending August 21 down to a low of 7.1 million b/d during the week ending September 25 (18.2% lower than the average). Since then, gross inputs to Gulf Coast refineries have vacillated between 7.2 million b/d and 7.4 million b/d, or between 15% and 17% lower than the five-year average. The decline from August into September is likely the result of several factors. This year’s comparatively active hurricane and tropical storm season (including Hurricanes Laura, Sally, Delta, and Zeta), resulted in a series of operational delays and temporary closures at a number of coastal refineries in Texas and Louisiana. In addition, because Gulf Coast refiners export more of their refinery output than any other U.S. region, resurging COVID-19 cases abroad and the measures to contain the surge in new cases likely put downward pressure on refinery throughput.
Refinery inputs in the Rocky Mountain region (PADD 4) account for the smallest share of U.S. runs, and its refineries primarily service local fuel demand. Rocky Mountain refinery operations returned to levels that were 5.2% lower than the five-year average at the beginning of August. Unlike the Midwest, the Rocky Mountain region does not have as substantial a distillate demand boost from the harvest sector, and all five Rocky Mountain states have seen resurging cases of COVID-19 since September, putting downward pressure on regional refined product demand. As of the week ending October 23, refinery inputs in the Rocky Mountain region were 10% lower than the five-year average.
The impact of the COVID-19 outbreak on the West Coast (PADD 5) put substantial and sustained pressure on refined product demand in the region that did not see as much of a mid-summer increase in refining runs. During the first week of August, when PADDs 2, 3, and 4 had relatively narrow gaps against their respective averages, West Coast refinery throughput remained about 25% lower than the five-year average. Since August, West Coast refining throughput has continued to narrow the gap, and as of the week ending October 23, West Coast gross refinery inputs were only 16% lower than the five-year average.
Sustained lower runs across the five U.S. regions, because of reduced demand for products, have led to weaker regional margins. For most refineries, it can be more mechanically or financially efficient to close a refinery entirely rather than operate at less than its effective utilization rate. On Thursday, October 29, PBF Energy Inc. announced that it would close conversion and some distillation capacity at its refinery in Paulsboro, New Jersey, while continuing to operate the remaining capacity with its nearby Delaware City facility. This decision follows a trend since the onset of the COVID-19-related downturn in refinery operations, namely increased temporary or permanent unit closures because of poor margins. Other examples of this trend include the indefinite idling of the Martinez refinery in Northern California near the end of July and the termination of petroleum refining at HollyFrontier’s Cheyenne refinery while the facility converts to a renewable diesel refinery, announced at the beginning of June (Figure 4).
The difficult refining conditions because of low fuel demand are not limited to the United States. At the end of September, in Japan, refiner ENEOS announced it would close its 115,000 b/d Osaka refinery, shifting its joint venture with PetroChina to its Chiba facility. On October 30, BP Australia announced plans to end refining operations at its 146,000 b/d Kwinana refinery in Western Australia.
U.S. average regular gasoline and diesel prices decrease
The U.S. average regular gasoline retail price decreased more than 3 cents to $2.11 per gallon on November 2, 49 cents lower than the same time last year. The Gulf Coast price decreased nearly 5 cents to $1.79 per gallon, the Midwest price decreased more than 4 cents to $1.97 per gallon, the East Coast and Rocky Mountains prices each decreased more than 2 cents to $2.07 per gallon and $2.22 per gallon, respectively, and the West Coast price decreased more than 1 cent to $2.77 per gallon.
The U.S. average diesel fuel price decreased more than 1 cent to $2.37 per gallon on November 2, 69 cents lower than a year ago. The East Coast, Midwest, and Gulf Coast prices each decreased nearly 2 cents to $2.44 per gallon, $2.25 per gallon, and $2.13 per gallon, respectively. The Rocky Mountain and West Coast prices were unchanged at $2.32 per gallon and $2.92 per gallon, respectively.
Propane/propylene inventories decline
U.S. propane/propylene stocks decreased by 2.6 million barrels last week to 95.8 million barrels as of October 30, 2020, 6.7 million barrels (7.5%) greater than the five-year (2015-19) average inventory levels for this same time of year. Gulf Coast inventories decreased by 1.8 million barrels, East Coast inventories decreased by 0.8 million barrels, and Midwest inventories decreased slightly, remaining virtually unchanged. Rocky Mountain/West Coast inventories increased by 0.1 million barrels.
Residential heating oil prices decrease, propane prices increase
As of November 2, 2020, residential heating oil prices averaged almost $2.14 per gallon, nearly 1 cent per gallon below last week’s price and almost 84 cents per gallon lower than last year’s price at this time. Wholesale heating oil prices averaged nearly $1.19 per gallon, more than 6 cents per gallon below last week’s price and almost 85 cents per gallon lower than last year.
Residential propane prices averaged nearly $1.83 per gallon, more than 2 cents per gallon above last week’s price but 7 cents per gallon below last year’s price. Wholesale propane prices averaged almost $0.69 per gallon, nearly 1 cent below last week’s price and less than 1 cent per gallon below last year’s price.
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Retail prices (dollars per gallon)
| Retail prices | Change from last | ||
|---|---|---|---|
| 11/02/20 | Week | Year | |
| Gasoline | 2.112 | -0.031 | -0.493 |
| Diesel | 2.372 | -0.013 | -0.690 |
| Heating Oil | 2.136 | -0.006 | -0.837 |
| Propane | 1.825 | 0.024 | -0.070 |
Futures prices (dollars per gallon*)
| Futures prices | Change from last | ||
|---|---|---|---|
| 10/30/20 | Week | Year | |
| Crude oil | 35.79 | -4.06 | -20.41 |
| Gasoline | 1.050 | -0.089 | -0.606 |
| Heating oil | 1.081 | -0.070 | -0.852 |
| *Note: Crude oil price in dollars per barrel. | |||
Stocks (million barrels)
| Stocks | Change from last | ||
|---|---|---|---|
| 10/30/20 | Week | Year | |
| Crude oil | 484.4 | -8.0 | 37.6 |
| Gasoline | 227.7 | 1.5 | 10.4 |
| Distillate | 154.6 | -1.6 | 35.5 |
| Propane | 95.828 | -2.564 | 0.292 |