| NEW YORK
NEW YORK Feb 5 U.S. refiners are facing the
prospects of weakening gasoline demand for the first time in
five years, stoking fears that earnings this year may be even
worse than the dismal performances seen in 2016.
The sign of weakening U.S. gasoline demand comes as U.S.
refiners are in the midst of reporting their worst year of
earnings since the U.S. shale boom started in 2011. The oil boom
turned to bust in 2014, and U.S. independent refiners reaped the
profits as plunging pump prices and a growing economy helped
fuel a surge in demand.
U.S. refiners amassed large inventories that punished
margins last year, but record gasoline demand and robust exports
helped provided a firewall against further slippage. Now the
industry faces the prospects of higher crude prices following
global production cuts and fresh federal data that suggests
their gasoline demand safety net may be eroding.
"We are very cautious on refining margins, and on demand,"
Sarah Emerson, a managing principal at ESAI Energy LLC, said.
"When oil prices goes up, gasoline demand is going to go down."
The U.S. Energy Information Administration said Wednesday
that the four-week average of gasoline supplied in the United
States was 8.2 million barrels per day, lowest since February
2012. U.S. gasoline demand is closely watched by traders since
it accounts for roughly 10 percent of global consumption.
"It's tough to base conclusions solely on the weekly data,
which can be off significantly," said Mark Broadbent, a refinery
analyst with Wood Mackenzie. "If the demand is low as it the
data shows, then it's a going to be real problem for refiners."
Gasoline use has grown every year since 2012, despite fears
that demand has topped out amid the growth of fuel efficient
cars, urbanization and a graying population.
Executives at independent U.S. refiners Marathon Petroleum
Corp, Phillips 66 and Valero Energy Corp
acknowledged the weaker-than-expected seasonal volume in
earnings calls this past week, but said they anticipated strong
demand to return. They said they expect production cuts in the
U.S. Midwest and a busy spring refinery maintenance season to
help trim inventories.
"Although we have seen unusual weakness in refined products
demand in January, we expect that solid economic growth will
continue to support good, underlying demand for refined products
as inventory levels are worked down over the course of the
year," Marathon CEO Gary Heminger said on Thursday.
Other refiners, including PBF Energy Inc, Tesoro
Corp and HollyFrontier Corp, will be reporting
earnings this week.
Valero executives said the EIA data did not reflect what
they are seeing in their own network, where demand has remained
strong. They noted that gasoline demand has risen on a
year-over-year basis when exports are added to domestic
Last January, overall crude runs were up 500,000 bpd as
refiners shifted away from diesel and other products to gasoline
to chase more attractive margins amid a mild winter and sluggish
diesel demand. The move led to an overbuild of gasoline stocks
that lingered into the summer, punishing margins when they
should have been at their strongest.
This January, crude runs are at historic levels, up by
roughly 300,000 bpd over last year.
While executives noted the similarities to last year, they
said one thing that sets this season year apart is that gasoline
inventories are now swelling with winter-grade gasoline, which
must be sold off to make room for summer grade, which U.S.
regulators require to have a lower Reid Vapor Pressure, or RVP.
That means inventories are not likely to linger - and so summer
gasoline margins could be preserved.
Valero, the largest U.S. independent refiner, reported $2.3
billion in net income for 2016, lowest since 2012, while
Marathon reported $1.2 billion in net income for 2016, lowest in
at least five years.
(Reporting by Jarrett Renshaw; Editing by Lisa Shumaker)