Refinery margins in the Atlantic Basin strengthened in August. In the US, margins rose amid a product
supply shortage in the wake of Hurricane Harvey, coupled with already firm domestic demand promoting
higher product crack spreads. In Europe and Asia, product markets increased as supply outages in the US
encouraged higher arbitrage volumes and healthy seasonal demand provided further support to refinery
US product crack spreads surged in the month of August amid refinery outages as Hurricane Harvey hit the
Texas shore, halting US Gulf Coast (USGC) refinery operations. The gasoline crack spread rose as a result,
while being fundamentally supported by robust domestic demand. Total product demand continued to
increase to reach around 9.7 mb/d in August, based on preliminary weekly data. Middle distillate demand
also strengthened, supporting rising margins in the wake of Hurricane Harvey, with the jet/kero crack spread
gaining a firm $5/b m-o-m, additionally supported by firm domestic demand. US Gulf refinery margins for WTI
crude gained more than $3.2/b versus the previous month’s levels to average around $13.3/b during August,
with refinery utilization rates reaching as high as 95.2% .
Product crack spreads in Europe displayed a rise in August, excluding fuel oil, which declined. Product crack
spreads were affected by supply outages on the USGC and increasing arbitrage opportunities to the US and
Latin America, particularly for middle distillates. The refinery margin for Brent crude in Northwest Europe
(NWE) showed an increase of $1.1/b versus the previous month to average $8.8/b.
Asian product crack spreads exhibited improvements across all product categories with the exception of fuel
oil. Strong seasonal demand and a reduction in stock levels continued to lend support to refinery margins,
which increased for Oman by $1.8 to $11.1/b in August compared with a month earlier.
Refinery utilization in the US recorded historical levels in August, despite plummeting towards the end of the
month as Hurricane Harvey started to make landfall, shutting down considerable refining capacity and
pipelines on the US Gulf Coast. Refinery utilization averaged around 95.2%, equivalent to 17.58 mb/d, which
was around 0.32 mb/d higher than a month earlier. On a y-o-y basis, refinery throughput rose by 0.89 mb/d.
During the last week of August, large capacity reductions were witnessed due to Tropical Storm Harvey.
Some estimations indicate as much as 4 mb/d of refining capacity was either completely or partially shut-in
as a result of the storm. ExxonMobil- Baytown and Beaumont refineries (with total capacity exceeding
0.9 mb/d) were reported to be fully shut. Shell, Deer Park refinery (0.3 mb/d refining capacity), Valero,
Corpus Christi (0.3 mb/d of refining capacity), Phillips 66 and Sweeny (0.24 mb/d refining capacity) are
examples of other refineries which completely shut down facilities. Meanwhile, Motive, Port Arthur, (0.6 mb/d
of refining capacity), Lyondell, Houston (0.6 mb/d of refining capacity) and Flint Hills, Corpus Christi
(0.23 mb/d of refining capacity) were reported to have partially shut operations.
Based on preliminary estimates for European refineries, average runs recorded around 93.8% of capacity in
August, supported by healthy refining margins. This corresponds to a throughput of 10.9 mb/d, which was
0.25 mb/d higher than in the previous month. Runs were higher in France by 40 tb/d m-o-m and in Italy by
55 tb/d m-o-m, while in Germany they were down by 52 tb/d m-o-m. The current calculations for refinery
turnaround in August indicate similar offline capacity to July levels of around 0.45 mb/d of closed capacity.
This is foreseen to rise to 0.73 mb/d in September. So far, 3Q17 planned turnarounds are expected to
average 0.54 mb/d, lower by 0.24 mb/d from 2Q17 amid healthy refinery margins in the region.
In Asia, refinery utilization rates increased for the second consecutive month, particularly in Japan as
refinery turnarounds abated. Japan’s refinery throughputs averaged 95.8% of capacity, 6 pp higher than the
previous month, and refinery runs in Singapore increased to 93.9%, up 6 percentage points (pp) compared
with the previous month. Additionally, refinery runs in China and India increased by 0.16 mb/d and 29 tb/d,
respectively, in line with seasonal patterns.
Product markets in the US displayed a solid performance in August, with all product cracks recording healthy
gains m-o-m, apart from fuel oil.
The gasoline 93 unleaded crack spread against WTI gained more than $3.8/b compared with the previous
month’s level to average $28.4/b in August. Hurricane Harvey hit the USGC during the last week of August
and its impact on gasoline prices over the monthly average was considerable. The gasoline crack spread
had actually been declining in the middle of August before skyrocketing during and after Hurricane Harvey at
the end of August. Based on initial weekly data, demand for gasoline was at 9.7 mb/d in August, indicating
very healthy demand during the summer driving season. This is approximately 54 tb/d higher than the month
of August 2016.
For middle distillates, the US Gulf Coast gasoil crack averaged around $12.0/b, adding more than $2.3/b
from the previous month. The jet/kerosene crack spread also rose sharply, adding close to $5/b to reach
$18.9/b from the previous months’ levels. Middle distillate demand, including jet/kerosene, stood at around
6.0 mb/d based on weekly data in August, higher than in July and around 0.7 mb/d higher than the same
month a year earlier. As such, the cracked spread rallied on rising demand and outages curtailed product
At the bottom of the barrel, the USGC high sulphur fuel oil crack declined by $0.4/b to average around
minus $3.5/b in August. The fuel oil market declined on easing demand, which fell by around 74 tb/d m-o-m
based on weekly data.
Product markets in Europe exhibited a positive performance in August, with all product cracks registering
gains m-o-m, with the exception of fuel oil.
The light-distillate naphtha crack against Brent increased by $0.6/b, reaching minus $0.7/b. A rise in the
naphtha crack spread in August was underpinned by the strength of reforming spreads and open arbitrage
opportunities from Europe to Latin America, as a result of shortages caused by Hurricane Harvey in the Gulf
of Mexico. The upward path in naphtha crack performance was also encouraged by outages at the 0.4 mb/d
Shell Pernis refinery towards the end of July.
The gasoline 98 RON crack spread against Brent railed in August, gaining $1.7/b from the previous month
to average around $23.5/b. The main supporter for gasoline crack spreads in Europe originated from the
arbitrage volumes heading to the US Atlantic Coast as Tropical Storm Harvey shut-in substantial refining
capacity, reducing the supply of gasoline. Latin America was another destination for European gasoline.
Arbitrage volumes increased during the month of August, as the supply to Latin America from the US abated
due to shortages.
The European gasoil 10 ppm crack spread against Brent crude at Rotterdam averaged around $13.0/b in
August, adding more than $0.7 compared with the previous month’s level. Lower diesel flows from the USGC
and healthy domestic demand supported the crack spread during the month. The European jet/kero crack
spread against Brent crude at Rotterdam averaged around $14.1/b in August, adding more than $1.4/b
compared with the previous month’s level on continuing solid demand and tighter overall supply.
At the bottom of the barrel, the NWE fuel oil crack for 1% sulfur shed some $1.5/b compared with the
previous month to average around minus $5.0/b in August. The decline is a result of seasonally slower
domestic demand and weaker export volumes to Asia.
The Asian market continued its upward trend in August, and was also affected by disruption of supply from
the USGC, resulting in growth in all product crack spreads, with the exception of fuel oil, which declined
The Singapore naphtha crack inched up compared with July levels to gain around $1.92/b over the month,
moving the crack spread into positive territory for the first time since February 2017. The crack spread
against Oman crude in Singapore averaged $0.21/b in August. Product fundamentals were solid in August,
with strong gasoline prices supporting reforming spreads and healthy petrochemical demand in the region.
Additionally, scheduled refinery maintenance will affect 0.3 mb/d from MRPL, India’s Mangalore refinery,
which is a key naphtha exporting refinery in the region. Formosa Petrochemical’s planned shutdown of its
2 million tons yearly (mty) is projected to last until the end of September, pressuring the crack spread going
The Asian gasoline 95 RON crack spread against Oman crude in Singapore averaged $17.1/b in August, up
by a healthy $3.0/b compared with the previous month’s level. The gasoline market continued to strengthen
during August, supported by healthy overall demand in the region and exacerbated by refinery outages on
the USGC, which opened up arbitrage opportunities to the US. Additionally, fire at Petrochina’s 0.4 mb/d
Dalian refinery further tightened supply in the region, thus supporting the crack spread.
At the middle of the barrel, the gasoil 50ppm crack spread witnessed some gains, adding around $0.1/b
compared with July to reach $13.9/b in August. In the first half of August, the product exhibited a downward
trend on the back of a heavy monsoon season in India, halting diesel requirements and unworkable arbitrage
to Europe. However, towards the end of the month, the gasoil crack spread received support from supply
outages on the US Gulf Coast as product prices increased. The jet/kero crack spread also experienced
upward momentum in tandem with gasoil, increasing by $0.6/b compared with July to reach $12.74/b in
August, supported by high global demand and outages from the US Gulf Coast.
At the bottom of the barrel, the Asian fuel oil 180 cst crack spread in Singapore against Oman averaged
about minus $3.2/b in August, shedding around $1.7/b of its previous month’s value. The fuel oil market
weakened as stocks in Singapore rose on the back of rising volumes from the US prior to Hurricane Harvey
and power sector demand from South Korea and Japan waned.
US relaxes restrictions to meet fuel needs following hurricane disruptions
The US administration relaxed shipping and product specification restrictions to meet fuel needs following
disruptions caused by hurricanes amid concerns about shortfalls in motor fuels.
On 8 September, US Department of Homeland Security (DHS) issued a waiver of the federal Jones Act,
which requires all vessels transporting goods between US ports to be US-built, US-owned, US-flagged and
serviced by US crews. The waiver – which covers a seven day period – seeks to facilitate the distribution of
refined petroleum products – namely, gasoline, diesel and jet fuel – from New York, Pennsylvania, Texas
and Louisiana to South Caroline, Georgia and Puerto Rico.
The head of the DHS called the move “a precautionary measure to ensure we have enough fuel to support
lifesaving efforts, respond to the storm, and restore critical services and critical infrastructure operations in
the wake of this potentially devastating storm.” The order was issued ahead of the expected landfall of
Hurricane Irma and in response to the disruption of product flows following Hurricane Harvey.
The last Jones Act waiver was issued in December 2012, for petroleum products to be delivered for relief
assistance in the aftermath of Hurricane Sandy.
Separately, the US Environment Protection Agency (EPA) issued waivers allowing the sale of reformulated
gasoline without additive to reduce pollution during the summer in all east coast states located in PADD 1,
all mid-western states located in PADD 2, and all Gulf Coast states located in PADD 3. The move allows
refiners and blenders to make an earlier shift to producing and selling more volatile but less expensive to
produce “winter-grade” of gasoline.
Colonial Pipeline filed an emergency petition seeking permission from Federal Energy Regulatory
Commission (FERC) to transport ‘transitionary’ gasoline – a grade between summer and winter
requirements – from Texas to the US Northeast. This follows a similar request by refinery Valero Energy
Corp, which said the waiver would allow Gulf Coast refiners to resume shipments without “undue and