U.S. refiners build new oil processing as travel rises

By Erwin Seba

HOUSTON (Reuters) – U.S. oil refiners aim to run at up to 94% of a total 17.9 million barrels per day processing capacity this quarter, according to company forecasts and analysts, driven in part by expectations of seasonal travel demand.

Strong prices and demand since late 2021 have encouraged refiners to run above 90% of their processing capacity and in a sign that they expect fuel demand to remain high, two refiners have added units or enhanced their output, reviving a once routine practice that disappeared amid COVID-19 closures.

This quarter is traditionally one of the year’s hottest for demand as companies build gasoline and jet fuel output for the summer vacation season. Motorist group AAA on Monday predicted the May 27-29 Memorial Day holiday weekend will be the third busiest for auto travel since 2000 and most active at U.S. airports since 2005.

This quarter’s pace compares to 91.3% utilization in the year-ago quarter and the 71.5% and 87.8% run-rates in 2020 and 2021 as the industry struggled with COVID-19 lockdowns that reduced fuel consumption and crushed industry profits.

BELOW PAR INVENTORIES

Behind the higher run-rate is the fact that motor fuel stocks are beneath their 5-year averages. Gasoline and distillates inventories are 7% and 16% below, investment firm Tudor Pickering Holt & Co estimated.

“Demand trends are strong in gasoline and jet (fuel),” said Matthew Blair, a managing director at Tudor Pickering. He estimates refiners overall will run at 94% utilization rate this quarter, matching the 2017-19 average for the period.

Among larger refiners, Marathon Petroleum plans to run at 91% of capacity, Valero Energy (NYSE:) at between 90% and 93%, and Phillips 66 (NYSE:) in the mid-90s, officials said.

“I would expect utilization to go up a couple of points (this quarter),” from the early May run rate of 91%, said David Hackett, chairman of fuel consultancy Stillwater Associates.

High prices will keep U.S. refinery utilization rates at levels near last year’s about 91.7% this year and next, the U.S. Energy Information Administration forecast in January.

Refiners will add the capacity to process an additional 328,000 bpd in this quarter, increasing gasoline and diesel supplies this summer.

Exxon Mobil (NYSE:) added 250,000 bpd at its Beaumont, Texas, refinery; Citgo Petroleum Inc 38,000 bpd at its Lake Charles, Louisiana, plant; and Marathon Petroleum Corp (NYSE:) 40,000 bpd at its Galveston Bay Refinery in Texas City, Texas.

Two others whose refineries were offline last quarter – Suncor’s in Commerce City, Colorado and Cenovus’ in Superior, Wisconsin, are resuming operations.

“Margins are not going to be as robust as they have been in the past year and a half,” said John Auers, managing director of Refined Fuels Analytics.