US Refinery Throughput: Fundamental Changes
Global economic forecasts have been gradually downgraded as summer has turned to autumn, and one would expect demand for crude and products to decline as output slows and consumption decreases. This is the case with the struggling US economy, where oil demand has declined 2.6% since 3Q2010. Logically, refinery throughput would reflect this, as less demand for products would be translated into lower crude runs. However, the US has somewhat bucked this trend.
Out in Front
As the Graph of the Month shows, global refinery throughput climbed to 76.4m bpd in July, the highest level on record. Meanwhile, US refinery throughputs reached 15.4m bpd in July, the highest level since July 2010. Traditionally, peaks in US product demand and throughput have occurred during the “driving season”, when vacationing Americans hit the roads. However, the current situation is more complex. US motor gasoline demand fell 3.8% y-o-y in June, while crude imports are projected to decline by 5% y-o-y in the full year; product imports are forecast to increase by 10% in full year 2011. These factors would normally indicate a decline, rather than an increase, in throughput.
Different Ball Game
By contrast, refinery throughput in non-OECD Asia has followed a more traditional pattern. Throughput in China increased by 8.4% y-o-y in July, which correlates with the country’s oil demand: crude imports are projected to increase by 5% y-o-y. This is likely to benefit crude carriers as China’s economy continues to expand. Similarly, throughput in non-OECD Asia has matched the speed of crude import growth in the region, increasing by 6.5% since July 2009.
The US situation is explained by crude supply and export demand changes. Crude import declines have been counteracted by domestic crude production, which is projected to reach 7.86m bpd in full year 2011 (its highest level since 2002). US oil exports, which averaged 2.92m bpd in July (a new peak), were driven by distillate fuel and gasoline exports to Latin America and Europe, in part due to the lower cost of WTI. This will benefit product tanker demand. However, the effect on overall tanker tonne-mile demand looks set to be negative: crude tonnes on the AG-N. America route (c.12,172 miles) are forecast to decline by 5% y-o-y to 83 mt in 2011, while product trade on the USG-UKC route (c.5,053 miles) is projected to increase by 1.2% to 13 mt. Clearly, an increase in product demand on shorter routes will not offset the loss of tonne-mile demand for crude carriers.
Never That Simple
Thus, despite weak domestic demand and lower crude imports, US refinery throughput has increased, fuelled by an increase in domestic crude production. This has altered the impact of throughput on the tanker market: increases in product exports will bolster the product tanker market to an extent, as export opportunities look set to continue. However, the underlying factors behind US throughput changes are unlikely to help declining crude tonne-mile demand on long-haul routes.