January 11 2022: US refining margins were mixed for the week ended Jan. 7, with strong gasoline demand pulling up cracking margins while coking margins suffered as omicron- and weather-related flight cancellations reduced demand for jet fuel, an analysis from S&P Global Platts showed Jan. 10.
However, Phillips 66 CEO Greg Garland said he expects “continued improvement and recovery in jet as we move into 2022.”
“I think that we’re kind of through lockdowns, and as we shift to a different phase from a pandemic to an endemic that we all learn to live with, air travel recovers,” Garland said Jan. 5 at the virtual Goldman Sachs’ Global Clean Energy and Clean Technology Conference.
Garland attributes recent issues around airlines cancelling flights to flight crew and weather rather than lack of demand for flying. According to the most-recent TSA data numbers, 1.694 million travelers were checked in on Jan. 9, almost double 2021 levels for the same day but still below the 1.955 million travelers for the same day in 2019.
On the US Gulf Coast, cracking margins for WTI MEH rose to $10.95/b for the week ended Jan. 7, up from the $14.90/b the week earlier, according to margin data from S&P Global Platts Analytics. Coking margins for Mexican Maya averaged $14.10/b compared with the $15.62/b the week earlier.
Inventories for gasoline, diesel and jet hover near five-year lows, according to US Energy Information Administration data, but jet demand recovery has lagged that of gasoline and diesel, both of which are at or above 2019 levels, forcing refiners to continue to blend jet into the diesel transportation fuel.
EIA data showed jet fuel accounted for 10.5% of US refinery yield in 2019 and 6.9% in 2020, but as of October 2021, the yield had moved to 8.6%.
Early in the pandemic US jet demand touched bottom at 597,000 b/d in May 2020, but it has been in recovery since, reaching 1.4 million b/d in October 2021, according to EIA data. Platts Analytics expects Q1 2022 jet demand to average 155,000 b/d below the 1.65 million b/d seen in Q1 2019, according to EIA data.
A L S O || R E A D
U.S. goods trade gap hits record; pending home sales slip – AUGAF
Higher jet yields expected Phillips 66’s refining system has a higher distillate yield than its peers and has benefited historically from the traditional $5/b distillate-crack-premium-to-gasoline crack, which, however, flipped to a $2/b gasoline crack advantage in 2021 due, in large part, to lack of jet demand.
“I think that the industry has done a marvelous job on balancing the yield coming out of refineries,” Phillips 66’s Garland said. “Just give what happened to jet and how we were able to take jet and push it into distillate and push it into gasoline and not see jet inventory go through the roof.”
Garland estimated almost 4.5 million b/d of global refining capacity was taken offline during the pandemic, and Phillips 66, like many of its peers, ran its plants efficiently at lower rates around 70% so as to not overwhelm the return of demand. The return of jet demand will help refiners increase their utilization.
“I think the wildcard is going to be turnarounds for 2022, and what the ultimate impact … is on refinery utilization,” he said.
Platts Analytics expects overall US refinery downtime to average 2.87 million b/d for the week ended Jan. 14, up from the 2.77 million b/d offline for the week ended Jan. 3.
With the recovery of jet demand, Phillips 66 expects 2022 margins to continue to recover.
“We think we’ll be at or above mid-cycle margins in our refining business coming into 2022,” Garland said. “I think that’s really important. Now, Q4 margins were actually pretty good, almost approaching mid-cycle.”
Garland noted that while Q4 margins were seasonally lower than Q3, on a RIN-adjusted basis they were probably $2/b better than Q4 2019 and “a lot better than we were in Q4 2020.”
