(John Kemp is a Reuters market analyst. The views expressed are
* Chartbook: tmsnrt.rs/2slLbeF
By John Kemp
LONDON, June 2 U.S. oil refineries are
processing record volumes of crude but stocks of refined fuels
remain well contained thanks to strong exports and demand at
U.S. refineries processed 17.5 million barrels per day (bpd)
of crude in the week ending on May 26, according to the U.S.
Energy Information Administration ("Weekly Petroleum Status
Report", EIA, June 1).
Throughput was more than 1.2 million bpd higher than at the
same point in 2016 and 2.2 million bpd above the 10-year
Record refinery runs have helped pull down U.S. crude stocks
by 31 million barrels since the end of March, with inventories
drawing down much faster and earlier in the year than normal.
But despite fears that record processing would result in a
build up of unsold products, stocks of gasoline and diesel have
generally moved in line with normal seasonal patterns.
Part of the explanation lies in the strength of exports,
mostly to markets in Central America, South America and the
Caribbean, where ageing and inefficient refineries have
struggled to meet growing demand from consumers.
U.S. refineries are increasingly geared towards meeting
demand from the rest of the hemisphere rather than just the
U.S. refiners and traders exported 640,000 bpd of gasoline
in the week ending on May 26, and a near-record 1.25 million bpd
of distillate fuel oil.
Fuel consumption at home is also now running at record or
near-record levels, according to an analysis of EIA data.
Gasoline supplied to domestic customers in the United States
hit a record 9.8 million bpd last week, an increase of roughly
330,000 bpd compared with the same period in 2016.
Distillate supplied averaged 4.1 million bpd, significantly
higher than in 2016, though still below the record set in 2007.
From the end of August 2016, the Energy Information
Administration introduced a new and more accurate methodology
for calculating exports and estimating weekly gasoline and
diesel consumption ("Statistical methodology of estimating
petroleum exports using data from U.S. Customs and Border
Protection", EIA, Aug. 2016).
The new methodology uses real-time information obtained from
U.S. Customs to estimate current weekly exports where the prior
methodology relied on a two-month lagged model to derive
estimated values, which in turn introduced a potential source of
errors into estimates for domestic consumption.
So estimates for consumption before and after August 2016
are not strictly comparable but the older data can be corrected
in retrospect using reliable monthly export data from the U.S.
The export-corrected time series show consumption of both
gasoline and distillate fuel oil has been running at a high
level since March.
The increase in gasoline and distillate demand is consistent
with more comprehensive monthly data showing consumption of both
rising strongly in March after being relatively weak in January
and February ("Petroleum Supply Monthly", EIA, May 2017).
Strong fuel demand in export markets and at home explains
why U.S. refining margins have held up well despite the surge in
processing rates ("Key commodity prices and differentials",
Valero, May 22).
Refinery margins in most parts of the United States have
been little changed during the second quarter of 2017 compared
with the same period in 2016, despite much higher throughput.
According to the EIA, U.S. refiners have added almost
500,000 bpd of atmospheric crude distillation capacity since the
start of 2016.
Building and expanding crude units is expensive so once
these units were commissioned there was a strong incentive to
use them to start recovering the cost.
U.S. refineries are generally more efficient than their
rivals in Europe and certainly more so than refineries in Latin
U.S.-based refiners also have lower transportation costs
given their proximity to sources of crude from Texas, New Mexico
and North Dakota, and being closer to major fuel customers than
rival suppliers in Europe and Asia.
U.S. refiners are therefore well placed to capture market
share from weaker and less flexible rivals in other parts of the
With so much fuel entering the supply chain there must be
some risk that either the domestic or export markets will become
But the resilience of refining margins indicates the risk is
not thought to be high at the moment and is giving refiners a
continued incentive running at record volumes.
"Record U.S. refinery runs fail to lift crude oil prices",
Reuters, April 27
"Hedge funds turn bearish on oil and refined fuels",
Reuters, May 8,
(Editing by David Clarke)