Analysis: Waning U.S. Refining Capacity to Boost Margins


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- A looming wave of U.S. refinery shutdowns is expected to 
provide a floor for refining margins, offsetting a global trend where falling 
crude costs have struggled to keep pace with rising refined product output.

   Refining margins soared to multi-year highs in the third quarter as global 
refinery outages jumped to more than 7 million bpd in September and over 8 
million bpd in October.

   Refinery runs were down 2.9 million bpd year-on-year in October, even as 
rallying diesel prices propelled crack spreads to their highest since March 
2024.

   The current 3:2:1 crack spread versus WTI, while down from its mid-November 
peak, is still 50% higher than at the same time last year, according to 
International Energy Agency data.

   Chevron's refining output has been significantly impacted this year by major 
incidents at its California facilities, most notably an explosion and fire at 
the 269,000-bpd El Segundo refinery in the Los Angeles County in October that 
reduced overall plant output by an estimated 15% to 25% for several weeks.

   Additionally, a series of unit shutdowns at Chevron's 245,000-bpd Richmond 
refinery in the San Francisco Bay in February and July contributed to 
California fuel imports hitting a four-year high to offset the supply crunch.

   Chevron aside, Phillips 66 has already processed the last crude oil barrel 
at its 139,000-bpd capacity Wilmington refinery in Los Angeles ahead of the 
planned closure by year-end.

   The West Coast is set to lose yet another regional fuel supply source by 
April 2026 with the closure of Valero's 145,000-bpd capacity plant in Benicia.

   The Phillips 66 and Valero unit closures together account for about 17% of 
California's refining capacity and 11% of refining capacity in the PADD 5 
region.

   This will put additional strain on the West Coast's gasoline supply. The 
region largely relies on its own production given the limited access to other 
PADDs and the lack of transportation infrastructure. The supply gap will likely 
have to be filled with more expensive imports from Asia.

   West Coast gasoline blending component imports have already more than 
doubled since Marathon converted in 2020 its 48,000-bpd Martinez refinery into 
a plant that processes renewable versions of diesel, naphtha and propane.

   PADD 5 imports of finished gasoline peaked at a four-year high 59,000 bpd in 
June, a month after the region imported blending components at the fastest pace 
since 2019, according to U.S. Energy Information Administration data.

   Gasoline prices on the West Coast, already higher than the national average, 
are likely to rise next year, in contrast to retail gasoline prices in the rest 
of the country. The EIA in its December Short-Term Energy Outlook forecast a 
national average retail price of $3 gallon in 2026, compared with $3.11 gallon 
this year, marking a 3.5% decrease. In PADD 5, however, the average gasoline 
retail price is expected to rise 5cts to $4.16 gallon in 2026.




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