The tight market for light, sweet crude just claimed its latest victim.
This week ConocoPhillips announced it would sell or shut down its 185,000 barrel-a-day refinery in Trainer, Pennsylvania.
The 86-year-old refinery down river from Philadelphia is the latest to face an existential threat from brutal conditions in the Atlantic basin oil markets. Sunoco earlier this month said it will try to unload two nearby refineries, or mothball them if no buyer is found.
While Midwest U.S. refiners are enjoying fat profits thanks to discounts on oils linked to the landlocked West Texas Intermediate blend, east coast rivals face a bleak reality.
Input costs are high partly due to the Libyan outage across the Atlantic. Refined product markets have become highly competitive, especially for gasoline, as Trainer battles with shipments from Europe and the Gulf of Mexico for market share.
Trainer mainly runs very low-sulphur crude from Africa and to some degree Canada. The latest publicly available data show the bulk of imports sailed from Nigeria and Angola.
Premiums for crude streams such as Nigeria’s Qua Iboe and Bonny Light have surged this year. As Phil Verleger, an independent oil economist, points out, refineries such as Trainer can use this crude to increase production of ultra-low sulphur distillate, a clean-burning fuel increasingly demanded by environmental regulators on both sides of the Atlantic.
More than half of Trainer’s output is gasoline, however -- a distinctly unattractive market at a time when gasoline demand on the U.S. east coast is running at the lowest level in almost a decade. “U.S. east coast refining has been under severe market pressure for several years. Product imports, weakness in motor fuel demand and costly regulatory requirements are key factors in creating this very difficult environment,” ConocoPhillips said when it put Trainer on the auction block.
If the three refineries on the block shut down, what does this mean for oil markets?
For east coast truckers and heating oil consumers -- I am the latter, alas -- it probably means tighter distillate fuel supplies and higher prices.
For Atlantic basin crude markets, however, any shutdowns could ease the squeeze on light, sweet crude supplies.
“It’s quite possible that between these three refineries, the situation will reverse and light, sweet crude will move into surplus,” Mr Verleger says.
“The real question is what China does. China does from time to time come over and become a big buyer of African crudes. That would leave the Atlantic basin pretty tight.”