US refining margins rose for the week ended Dec. 31, putting a strong finish on 2021, despite the rapid spread of the highly contagious omicron variant as the world enters the third year of coronavirus, an analysis from S&P Global Platts showed on Jan. 3.
Most-recent US Energy Information Administration data showed gasoline demand for the week ended Dec. 24 averaged 9.724 million b/d, as many travelers opted for driving rather than flying to reach their holiday destinations. According to the New York Times, the number of new US coronavirus cases has risen by 204% over the past 14 days to reach over 400,000.
Low inventories and strong demand from holiday travelers helped drive margins higher across the US, with benchmark US Gulf Coast cracking margins rising to average $14.90/b for the week ended Dec. 31, putting the average yearly margin at $13.16/b.
The 2021 annual average USGC WTI MEH cracking margin exceeded the 2020 $5.96/b annual average and even surpassed 2019's annual margin of $10.49/b, according to S&P Global Platts Analytics margin data.
RFS impact
However, one reason for higher 2021 margins was the rising cost of compliance with the US Environmental Protection Agency's Renewable Fuel Standard included as a component in the margin as calculated by Platts Analytics.
The price of RINs, Renewable Identification Numbers credits used by obligated parties to meet their Renewable Volume Obligations under the RFS, reached record highs in 2021, due in part market uncertainty resulting from the delayed mandated volume release by the EPA to adjust volumes lower to account for the coronavirus impact on demand in 2020 and 2021.
RINs accounted for $4.80/b of WTI MEH cracking margin in 2021, compared with $1.75/b and 85 cents/b in 2020 and 2019, respectively, which meant 2021 USGC WTI MEH USGC RIN-less margins averaged $8.36/b, below the 2019 average of $9.63/b.
And RFS compliance is expected to get more expensive in 2022.
To balance out lower 2020 and 2021 volumes, the EPA upped 2022 volume mandates, thus increasing the value of the 2022 RVO, which averaged 14.58 cents/gal for the week ended Dec. 31, up from the 14.06 cents/gal for the week ended Dec. 24, according to Platts assessments.
Low product inventories support margins
Most-recent EIA data showed gasoline and diesel inventories were hovering near five-year lows, with gasoline at 222.7 million barrels and ULSD at 112.3 million barrels for the week ended Dec. 24, despite strong refinery rates.
Four-week refinery run rates inched up toward the 90% utilization mark, averaging 89.7% for the four weeks ended Dec. 24, considerably higher than the pandemic-driven 78.9% yearly average in 2020, according to EIA data.
"From a demand standpoint, last week's DOEs remain robust," wrote JP Morgan analyst Phil Gresh in a research note. with record gasoline demand of approximately 9.7 million b/d on a seasonally adjusted basis. As a result, clean product inventories declined more than 3 million barrels in a period that typically sees builds of greater than 3 million barrels.
"The upcoming week's end of year DOEs should be interesting, as the final week of the year tends to have large seasonal builds for tax reasons," Gresh added. "However, with an already low starting point, this data point will help to frame the starting point for 2022, which seems like it could be lower than many past years."
US Atlantic Coast Refining Margin Averages ($/b)
Bonny Light Cracking
Arab Light Cracking
Bakken Crude Cracking
Forties Cracking
Week ending December 31
12.74
10.18
10.61
12.43
Week ending December 24
12.70
9.49
10.93
12.19
Q4 to date
13.14
10.53
11.03
11.95
Q4-20
4.10
2.96
3.95
3.99
Q3-21
13.60
10.14
11.18
12.29
Q2-21
11.72
8.16
10.18
10.59
Source: S&P Global Platts Analytics
US Gulf Coast Refining Margin Averages ($/b)
Arab Light Cracking
WTI MEH Cracking
LLS Cracking
Mars Coking
Week ending December 31
11.02
14.90
14.59
15.13
Week ending December 24
10.14
14.67
14.04
14.26
Q4 to date
10.74
14.31
14.40
14.89
Q4-20
2.78
6.43
6.03
4.61
Q3-21
10.65
14.55
14.12
14.32
Q2-21
8.66
13.12
11.79
11.53
Source: S&P Global Platts Analytics
US Midwest Refining Margin Averages ($/b)
Bakken Cracking
WTI Cushing Cracking
Syncrude Cracking
WCS ex-Cushing Coking
Week ending December 31
13.28
11.80
13.30
14.03
Week ending December 24
12.35
11.03
12.09
13.55
Q4 to date
13.66
12.28
13.54
16.34
Q4-20
6.86
4.47
7.92
3.89
Q3-21
16.64
15.31
15.82
17.52
Q2-21
16.69
14.80
14.18
15.87
Source: S&P Global Platts Analytics
US West Coast Refining Margin Averages ($/b)
ANS Cracking
Vasconia Coking
Arab Medium Coking
Maya Coking
Week ending December 31
18.25
27.96
20.37
23.98
Week ending December 24
15.99
24.85
17.35
21.84
Q4 to date
17.79
26.11
19.24
21.44
Q4-20
10.01
11.97
8.98
12.33
Q3-21
17.15
24.76
17.75
20.13
Q2-21
16.86
22.14
16.57
18.86
Source: S&P Global Platts Analytics
Singapore Refining Margin Averages ($/b)
Dubai Cracking
Arab Light Cracking
ESPO Cracking
Arab Light Coking
Week ending December 31
3.58
1.91
5.20
2.99
Week ending December 24
3.56
1.84
5.45
3.02
Q4 to date
3.20
2.24
4.90
3.43
Q4-20
-0.51
0.08
-0.83
0.05
Q3-21
0.65
-1.24
2.62
-0.76
Q2-21
-0.74
-1.76
1.04
-1.46
Source: S&P Global Platts Analytics
ARA Refining Margin Averages ($/b)
WTI MEH Cracking
Bonny Light Cracking
Arab Light Cracking
Urals Cracking
Week ending December 31
6.25
7.96
3.21
6.87
Week ending December 24
6.33
8.14
3.10
6.97
Q4 to date
6.57
8.81
5.36
7.45
Q4-20
1.01
1.49
0.20
1.03
Q3-21
6.08
7.69
4.08
6.52
Q2-21
4.20
5.33
2.96
4.55
Source: S&P Global Platts Analytics
