MOSCOW (MRC) -- U.S. gasoline refining margins fell a whopping 95% on Monday - even briefly turning negative - with the cost of gasoline plunging faster than crude oil in anticipation that the coronavirus will keep people off the road and in their homes, said Hydrocarbonprocessing.
The coronavirus pandemic has infected 180,000 people worldwide and caused over 7,000 deaths, prompting governments to order travel restrictions and business closures. U.S. gasoline demand is plunging as businesses shut and state and local governments advise people to stay home.
U.S. gasoline refining margins RBc1-CLc1 settled at 28 cents per barrel on Monday, their lowest since December 2008, another signal that economic activity appears to be contracting. “Oil prices have been dropping hard enough. For product prices to outpace them signals a huge shift in demand expectations,” said Matthew Smith, director of commodity research at ClipperData.
Refiners process crude oil into a number of products, chiefly motor gasoline, heating oil and diesel fuel. Normally, gasoline margins rise as driving season approaches, and distillate margins - for making heating oil and diesel - rise in the winter months.
The United States consumes about 9 million barrels per day of motor gasoline, but fuel demand is now expected to fall by roughly 2 million to 2.5 million bpd in the next three to four weeks, said Per Magnus Nysveen, senior partner at Oslo-based energy research firm Rystad Energy.
Congestion in major cities worldwide has been dropping sharply, according to TomTom, which makes navigation technology. Headed into the evening rush hour on Monday, congestion in New York City was down by 37% from last year’s average. In Chicago, it was down 24%.
Such declines have not yet shown up in U.S. official data. As of March 6, the four-week average for motor gasoline supplied by refiners - a proxy for demand - was up 1.7% from the year-ago period, according to U.S. Energy Department figures.
The margin to produce distillate products is at USD14.95 a gallon, a relatively healthy margin. Heavy-duty tractor-trailers use diesel, a sign that traders believe demand for shipped goods will be less affected as people take deliveries at their homes.
Oil prices have plunged both on the virus and the unexpected eruption of a price war between Saudi Arabia and Russia. U.S. crude futures have fallen more than 50% since the start of the year to USD28.70 a barrel. Gasoline futures have plummeted around 57% to nearly 69 cents a gallon. The steep drop in margins means that refiners may need to cut processing or temporarily shut to save money.
“This shows traders believe refiners could flood a shrinking market and sends them a strong signal to cut runs as soon as possible to prevent further losses,” said Sandy Fielden, director of oil and products research, at Morningstar in Austin, Texas.
Tracking the steep decline in U.S. margins, Northwestern European gasoline refining margins dropped to around -$6.6 a barrel on Monday, their lowest since January 2009.
As MRC informed earlier, oil rose more than USD1 as bargain hunters emerged after recent sharp falls due to the coronavirus pandemic and the price war between Saudi Arabia and Russia, but fears of a recession still dragged on the market. Brent crude was up by 3%, or 89 cents, to USD30.94 a barrel by 0746 GMT, after hitting a high of USD31.25. U.S. West Texas Intermediate (WTI) crude rose 4.7%, or USD1.36, to USD30.06, having come off a high of USD30.21.
As MRC informed earlier, Asian refiners may curtail jet fuel output by partially reducing processing as the fuel's value versus diesel plunged after the United States said it would ban European travellers to prevent the spread of the coronavirus. The regrade, which is the price difference between jet fuel and diesel with a sulphur content of 10 parts-per-million (ppm), fell to a discount of USD3.86 a barrel on Thursday, the lowest since Aug. 13, 2015, according to data from S&P Global.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 215,390 tonnes in the first month of 2020, up by 23% year on year. Shipments of all grades of high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) increased due to higher capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 127,240 tonnes in January 2020, up by 33% year on year. ZapSibNeftekhim's homopolymer PP accounted for the main increase in shipments.
MRC