EIA: This Week in Petroleum - 17 March 2021 - eng ^{Избранное}

China processed more crude oil than net inputs of crude oil to U.S. refineries for several months in 2020

In April 2020, refinery processing of crude oil in China was higher than net inputs of crude oil to U.S. refineries for the first month on record, and that trend continued for all remaining months in 2020 except for July and August (Figure 1). China’s National Bureau of Statistics only reports the country’s processing volume of crude oil, and the most direct comparison to the United States is refinery net inputs of crude oil. U.S. refiners also report total gross inputs into distillation units, which includes non-crude liquids such as lease condensate and unfinished oils, making gross inputs about 0.5 million barrels per day (b/d) higher than crude oil net inputs. China’s crude oil processing also exceeded U.S. gross inputs in both May and October 2020. China processed more crude oil than the United States not only because of the unique effects of the pandemic-related restrictions in 2020, but also the differences in the longer term structural trends in refining between the two countries.

Figure 1. Monthly U.S. and China crude oil processing.

April 2020 was the first full month in the United States in which responses to the 2019 novel coronavirus disease (COVID-19) reduced demand for petroleum products such as gasoline, distillate, and jet fuel. Compared with March 2020, net inputs of crude oil to U.S. refiners in April decreased by 2.4 million b/d (16%), the largest month-on-month decline in terms of volume and percentage since at least 1961, when U.S. Energy Information Administration (EIA) refinery run records began. In addition, for the week that ended on April 10, 2020, net inputs of U.S. crude oil averaged 12.7 million b/d, the lowest level since Hurricanes Gustav and Ike made landfall on the Gulf Coast in September 2008. In every month from April to December in 2020, U.S. refinery runs were at least 14% below December 2019 levels.

Although net inputs of U.S. crude oil increased to more than 14.0 million b/d in July and August, Hurricanes Laura and Sally in late August and September, respectively, and Hurricanes Delta and Zeta in October resulted in refinery shut-ins on the Gulf Coast, where more than half of U.S. refining capacity is located. In addition, Gulf Coast refiners typically plan maintenance in the fall, which further reduced capacity. Although some refineries came back online in late 2020 and early 2021, refinery runs remain lower than historical averages, partially because of relatively low demand for petroleum products. For example, the 255,600 b/d Alliance refinery in Belle Chasse, Louisiana, owned by Phillips 66, resumed processing in January 2021 following a September shut-in because of Hurricane Sally. Nevertheless, 2021 weekly U.S. refinery utilization rates were lower every week in January and February than year-ago levels. Recent unplanned refinery outages as a result of extreme cold weather have also delayed U.S. refining from returning to average levels.

In contrast to lower-than-average U.S. refinery runs, China’s crude oil processing increased above prior average levels quickly, following the loosening of COVID-19 restrictions in April 2020. After a decrease in runs from January to March 2020, China’s crude oil processing began to return to average levels in April and grew to a record high in June at 14.1 million b/d. China’s refinery runs further rose to 14.5 million b/d in November. Since June 2020, more than 14.0 million b/d of crude oil has been processed every month in China.

China’s refinery runs started to rise in April 2020 partially because of a domestic policy implemented in 2016 that provides incentives to refiners to produce more product when the Brent crude oil price falls to less than $40 per barrel (b). The Brent crude oil price fell and remained less than $40/b between March and May. China’s 2016 policy fixes prices for domestically produced gasoline and diesel at the price floor of $40/b when Brent crude oil prices fall to less than $40/b. Because domestic gasoline and diesel continue to sell at $40/b when the policy sets in, the crack spread between crude oil prices and product prices increases as crude oil prices decrease further from $40/b (Figure 2). Refiners likely increased operations to capitalize on this increased profit potential in April, when crude oil prices were at their lowest.

Figure 2. Effect of Chinese price floor policy on profits.

China has also been increasing refinery runs as part of a long-term plan to independently meet its feedstock needs for plastic production and shift away from importing feedstocks, such as naphtha, ethylene, propylene, and liquefied petroleum gas.

Although many of the circumstances contributing to reduced U.S. refinery runs were temporary, some factors, such as refinery closures, are permanent. Marathon announced that it is closing its 161,000 b/d plant in Martinez, California, which the company may convert into a renewable diesel facility. Royal Dutch Shell announced it was closing its 240,000 b/d Convent plant, and other plants have closed because of any combination of maintenance expenses from hurricane damage, lower profitability at less-than-effective utilization rates, and relatively low crack spreads. As of December 2020 (the latest month for which data are available), the United States had 18.4 million barrels per calendar day (b/cd) of petroleum refining capacity, also known as operable atmospheric crude oil distillation capacity. After reaching a record high of nearly 19.0 million b/cd in early 2020, beginning in September 2020 and continuing through December, U.S. refining capacity fell to its lowest level since May 2016 (Figure 3).

Figure 3. U.S. operable crude oil distillation capacity in 2020.

Meanwhile, China’s refining capacity has rapidly increased, nearly tripling since 2000. Zhejiang Petrochemical Corp began running a 200,000 b/d crude oil unit in November 2020, and China has at least four other ongoing projects that will increase refining capacity by about 1.4 million b/d by the end of 2024: the Zhejiang Phase 2 project; the Shandong Yulong Project; the Jiangsu Shenghong Project; and PetroChina’s refinery in Guangdong. According to trade press, about 70% to 80% of the capacity that comes online by 2025 will contribute to producing feedstocks for plastics.

In the past year, although other refiners in Asia have permanently shut down because of low margins (such as the Tabango refinery in the Philippines) China has increased crude oil production and crude oil imports, taking an increasing market share of global petroleum products.

Despite the planned growth in China’s refining, EIA expects that the United States will likely process more crude oil than China in 2021 as demand partially returns to average levels. EIA forecast in its March Short-Term Energy Outlook (STEO) that U.S. crude oil net inputs will increase from an average of 14.0 million b/d in the second half of 2020 to 14.9 million b/d in 2021.

U.S. average regular gasoline and diesel prices increase

The U.S. average regular gasoline retail price increased more than 8 cents to $2.85 per gallon on March 15, 61 cents higher than the same time last year. The Rocky Mountain price increased more than 13 cents to $2.84 per gallon, the Gulf Coast price increased 11 cents to $2.61 per gallon, the West Coast price increased nearly 9 cents to $3.43 per gallon, the East Coast price increased more than 8 cents to $2.79 per gallon, and the Midwest price increased nearly 6 cents to $2.76 per gallon.

The U.S. average diesel fuel price increased nearly 5 cents to $3.19 per gallon on March 15, 46 cents higher than a year ago. The Rocky Mountain price increased nearly 15 cents to $3.28 per gallon, the Gulf Coast price increased nearly 6 cents to $2.99 per gallon, the West Coast price increased nearly 5 cents to $3.64 per gallon, the Midwest Price increased more than 4 cents to $3.17 per gallon, and the East Coast price increased more than 3 cents to $3.15 per gallon.

Propane/propylene inventories decline

U.S. propane/propylene stocks decreased by 0.2 million barrels last week to 41.0 million barrels as of March 12, 2021, 7.2 million barrels (14.9%) less than the five-year (2016-2020) average inventory levels for this same time of year. East Coast and Midwest inventories decreased by 0.4 million barrels and 0.2 million barrels, respectively, and Rocky Mountain/West Coast inventories decreased slightly, remaining virtually unchanged. Gulf Coast inventories increased by 0.5 million barrels.

Residential heating oil prices increase, propane prices decrease

As of March 15, 2021, residential heating oil prices averaged more than $2.90 per gallon, 2 cents per gallon higher than last week’s price and nearly 31 cents per gallon higher than last year’s price at this time. Wholesale heating oil prices averaged $2.10 per gallon, more than 2 cents per gallon above last week’s price and more than 85 cents per gallon above last year’s price.

Residential propane prices averaged almost $2.36 per gallon, nearly 6 cents per gallon lower than last week’s price but 43 cents per gallon above last year’s price. Wholesale propane prices averaged more than $1.09 per gallon, almost 7 cents per gallon below last week’s price but more than 60 cents per gallon above last year’s price.