Refineries face headwinds as COVID cases rise - Houston Chronicle

WASHINGTON - Oil refineries along the Gulf Coast are facing another slowdown amid a fresh round of COVID-19 restrictions, six months after global fuel demand fell off a cliff following government-ordered shutdowns to halt the spread of the coronavirus.

Even as gasoline and diesel demand has bounced back in recent months, states including New York, Ohio and Pennsylvania are expanding restrictions on visitors from out of state as infection rates climb across the country. International borders with Mexico and Canada remain closed to all but essential travel. European cities, including Paris and London, are cracking down on nightlife, with curfews and early pub closings

So far U.S. gasoline demand is holding steady at about 8.6 million barrels a day, down 7 percent from this time last year - a considerable rebound since April when demand was down more than 40 percent. But were government restrictions to ramp further and cities to again order citizens to stay home and businesses to close, demand for gasoline, diesel and jet fuel would be at risk.

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“If you’re shutting down New York or Boston or Philly, you could see (fuel demand) drop down 20 percent again,” said Debnil Chowdhury, an analyst with the research firm IHS Markit. “It might sound incomprehensible that would happen again. But look at the shock around the curfews in Paris. A month ago, that wasn’t fathomable.”

That would have significant implications for the Texas and Louisiana Gulf Coasts, home to roughly half of the nation’s oil refineries and natural gas processing facilities.

Already refineries in New Mexico and California have shut down. Those refineries still operating are doing so at greatly reduced production, with 60 to 70 percent of facilities currently operating at loss, Chowdhury said.

Companies including LyondellBasell and Marathon Petroleum have announced the layoff of hundreds of refinery workers, as they try to reduce losses for what many in the industry believe could be a years-long downturn.

Last month, credit ratings firm Moody’s warned in note to investors it expected the pandemic to “accelerate the closure of less competitive refineries.”

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“The pandemic-driven downturn in profitability, along with market volatility, will spur refiners to review their business strategies and financial policies,” the firm said.

Still, compared to where fuel demand was six months ago, there is some sense of relief among refining executives.

Jet fuel sales are still down close to 30 percent, but diesel consumption has rebounded more strongly that many anticipated as Americans turn to Amazon and other online shopping outlets to deliver goods to their homes. Gasoline demand is recovering, too.

While office workers are commuting just a day or two a week at best, Americans are getting in their vehicles to travel, driving more than 250 billion miles in August — an almost 50 percent jump since April - according to Federal Reserve Bank of St. Louis.

“People are relying on delivery on items they used to pick up themselves. That’s why diesel demand is more resilient,” said Susan Grissom, chief analyst at the trade group American Fuel and Petrochemical Manufacturers, which represents refineries. “There’s a different type of driving going on.”

Refining firms such as Phillips 66 in Houston and Valero in San Antonio have reported sharp declines in the profitability of refining operations since the pandemic began. Share prices of the two companies, considered among the best capitalized in the sector, have declined by more than half since the beginning of the year.

But there’s a sense on Wall Street the worst is probably over. Moody’s advised investors last month this could be a good time to start buying stock in refining companies

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Now, analysts are no expecting fuel demand to return to pre-virus levels until the second half of 2021 or possibly 2022. Such forecasts are based on expectations a vaccine will be on the market by that time, something that remains uncertain.

“Maybe by April we’re having vaccine parties and everyone’s going on big trips. We could have a big surge in jet fuel demand and everyone’s going to have to change their forecasts,” Chowhury said. “Nobody knows. Call me again in March, and I might have a really different answer.”