Lack of overhauls at US refineries could halt industry recovery By Reuters

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© Reuters.

By Laura Sanicola and Erwin Seba NEW YORK / HOUSTON (Reuters) – US oil refineries are forecasting a strong recovery in fuel demand in the second half of this year as vaccination rates rise and are expected to that workers resume travel and vacations. But oil processors seem to be skimping on the routine spring checks that generally prepare refineries for peak summer production. Maintenance cuts could make it difficult to boost production as the economy recovers from the pandemic-related contraction. US plants are operating at about 82% of capacity, according to US government data, about 10 percentage points less than normal capacity at this time of year. Margins on average are positive for every barrel of oil processed, but refineries are losing money on production as crude prices rise faster than demand for fuel. “Certainly by the summer, we would expect a good chunk of the American public to be able to go out and burn the fuels that we make,” said Robert Herman, executive vice president of the fourth largest US refinery Phillips 66 (NYSE :), said to investors last week. Recently, executives from Valero Energy Corp (NYSE 🙂 and LyondellBasell Industries (NYSE 🙂 echoed their vision of a recovery in demand in the second half. Major US oil refineries Marathon Petroleum Corp (NYSE 🙂 and Exxon Mobil Corp (NYSE 🙂 have signaled that production could continue to decline further due to lower demand for fuel than planned maintenance shutdowns at the first part of the year. Exxon said its restructuring costs would increase this quarter. ‘UPDATE’, but Marathon forecast a first-quarter expense of $ 150 million in planned maintenance, less than half its budget a year earlier. Phillips 66 estimated $ 200 million to $ 230 million in restructuring costs this quarter, up from $ 329 million a year ago. Lower costs could reflect reduced stress due to lower production on equipment, or extend work and limit overtime, said Matthew Blair, a refining analyst at Tudor, Pickering, Holt & Co. “But response times they were low in 2020. It looks like there will be a need to catch up at some point, “Blair said. The early spring and fall are traditionally busy periods for US refinery maintenance, as operators brace for the driving demand of summer and switch to churning out more gasoline blends for the winter. Periodic reviews are also needed to ensure safety. Production will drop when maintenance begins, said Bob Yawger, futures director at finance firm Mizuho Americas. He predicted that fuel production will fall another 6.5 percentage points from 82.5% peak utilization in January. “No matter how it goes down, the recovery season is just a matter of time,” Yawger said Jan. 27. “The only question is how far the refinery operating rate is sliding.” Refineries doing spring maintenance would be building crude oil inventories and reducing fuel reserves by now, “and that’s not happening,” he said this week. WILL THE BLACKOUTS SPREAD? Some refineries have begun to close units for maintenance. Citgo Petroleum shut down the large fluid catalytic cracker (FCC) that produces gasoline on January 15 at its Corpus Christi, Texas, refinery for about a month, sources told Reuters. Lyondell’s refinery in Houston closed a crude distillation unit (CDU) on Monday for an overhaul of at least three weeks that will also affect the coking and hydrotreating units needed to process the raw materials into fuel. Cokers convert residual crude from distillation units into feedstock for motor fuels or petroleum coke, a substitute for coal. Hydrotreaters remove sulfur from gasoline in accordance with US environmental regulations Marathon plans to shut down the FCC at its Galveston Bay Refinery in Texas City, Texas, this month for about six weeks.