Market Insider

US refiners export record amounts of gasoline, diesel

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The U.S. last week exported a record 8 million barrels of gasoline and nearly 10 million barrels of distillates, or diesel, according to weekly government data released on Thursday.

U.S. refined product exports have been growing as refineries run at high levels and the U.S. has been oversupplied with gasoline and crude oil. Analysts said a big chunk of the exported fuel probably went to Mexico and destinations in South and Central America.

"We have never exported more gasoline and distillates than we did last week. ...The total amount of exports is huge. There's no doubt about it that it's a record," said Tom Kloza, head of global energy analysis at Oil Price Information Service.

The 1.1 million barrels of gasoline exported per day, rose from 795,000 barrels a day the week earlier and 472,000 barrels a day at the same time last year, according to weekly data from the Energy Information Administration.

Final detailed data on December exports will not be available for several months. October data should be available next week. Distillate exports totaled 1.4 million barrels a day last week, up from a four week average of about 1.2 million barrels a day.

"The export markets are taking what the domestic demand doesn't need, and it's good for refiners on the Gulf Coast…from that stand point it's helping refining margins," said Andrew Lipow, president of Lipow Oil Associates. He said there is strong demand in Mexico and the Caribbean at this time of year.

Kloza said Mexico has increasingly become a destination for U.S. gasoline exports, as refineries there are far less efficient and run at about 50 percent capacity compared to closer to 90 percent in the U.S.

"They're just across the Gulf of Mexico. We've added two million barrels a day of [refining] capacity to the U.S. in this century," he said. "If it weren't for gasoline exports - and the highest months for exports can be December and January - we'd be looking to match that big inventory buildup we had last January." Kloza said supply peaked last winter at about 258 million barrels.

Mexico exports its heavier crude to the Gulf Coast for refining. In September, just over 500,000 barrels a day of Mexican crude was sent to the U.S.

"Traders at the Gulf Coast...keep talking about the tremendous gasoline demand to move to central and South America," Kloza said. Spot gasoline in the Gulf Coast is just four cents under the futures price, but it's typically more like 20 or 25 cents under, he said.

"There's clearly a lot of demand for Gulf Coast gasoline. The difference maker is exports. I think Mexico is probably 40 to 50 percent of it."

He expects January demand for gasoline in the U.S. to be weak. U.S. retail gas prices were at a national average of $2.303 per gallon of unleaded Thursday, according to AAA. Kloza said the annual average has been $2.12 per gallon in 2016.

"I think domestic demand is incredibly lumpy," he said.

He said the U.S. is not adding any more refining capacity next year. "Every previous year we've been adding several hundred thousand barrels of capacity. The fact is there's about 1.9 million barrels a day of global capacity being added, most of which is in the Middle East and southeast Asia. It's not in the Western Hemisphere."

The refining industry has been concerned about a proposed border adjusted tax that could tax imports, such as crude, but not exports of U.S. product. The tax is currently included in the proposed House corporate tax overhaul plan, but it is far from clear whether there would be exemptions or that it will even make it into the final plan.

"It may be that the Saudis and other parts of the Middle East become a supplier for Latin American destinations. For now, it's a brisk export market. How will the macro economic decisions of Donald Trump impact South America? That could have a great impact on refiners here," said Kloza.

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