Valero Energy Predicts Favorable Market Conditions for Gasoline and Distillate Cracks

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  • U.S. refiners have been revamping their processing units to make them compliant with the IMO regulations.
  • Valero plans to run its 14 refineries at up to 95% of their combined capacity of 3.1 million barrels-per-day (bpd) in the fourth quarter.
  • At Valero’s two non-US refineries, fourth quarter throughput will range from 475,000 b/d to 495,000 b/d, in line with the third quarter.

Valero expects gasoline and diesel cracks to maintain in the fourth quarter the upward momentum seen at the end of the third quarter as the IMO 2020 deadline nears, reports Platts and Reuters.

IMO regulatory standards

We expect to see continued product strength with inventories at lower levels and sour crude weakness resulting from the IMO low-sulfur fuel oil mandate, which goes into effect on January 1, 2020,” Chief Executive Joe Gorder said in a statement.

U.S. refiners have been revamping their processing units to make them compliant with the International Maritime Organization’s (IMO) regulatory standards.

The IMO, an agency of the United Nations, has mandated sulfur content in marine fuels be no more than 0.5%, down from 3.5% now.

Third quarter profit exceeds

The San Antonio, Texas-based company also reported a better-than-expected third quarter profit, benefiting from easy access to cheap light crude from the country’s prolific shale oil basins.

Valero plans to run its 14 refineries at up to 95% of their combined capacity of 3.1 million barrels-per-day (bpd) in the fourth quarter, Homer Bhullar, vice president of investor relations, said on a post-earnings conference call.

In the U.S. Gulf Coast region, combined throughput at Valero’s seven Gulf Coast refineries will run up to 96% of their combined capacity of 1.8 million bpd, Bhullar said.

Adjusted net income attributable to the company fell to $609 million, or $1.48 per share, in the third quarter, from $856 million, or $2.01 per share, a year earlier.

Analysts on average had expected $1.35 per share, according to IBES data from Refinitiv.

Refining margins fell 8.6% in the quarter, while total throughput volumes were down 4.5%. Gasoline markets are beginning an expected shift in preparation for the change in marine fuels mandated by the IMO, said Gary Simmons, Valero’s senior vice president of supply.

If you look today, low sulfur (vacuum gas oil) was $5 over gasoline in the Gulf, which is the point where you’ll start to see people pull that out of crackers and put it into the low sulfur bunker, which should impact gasoline yield moving forward,” Simmons said.

Western Canadian producers

Reducing the volume of key feedstock vacuum gas oil going to gasoline-producing catalytic cracking units to cut sulfur in marine bunker fuels is expected to push up pump prices for consumers.

Throughput at Valero’s US West Coast refineries are expected to range from 260,000 b/d to 280,000 b/d in the fourth quarter, marginally lower than third quarter throughput of 283,000 b/d.

At Valero’s two non-US refineries, fourth quarter throughput will range from 475,000 b/d to 495,000 b/d, in line with the third quarter.

While Valero did not comment on the schedule of planned work ahead at its refineries, fourth-quarter expectations for refining cash operating expense are $3.95/b compared with actual third quarter cash expenses of $4.05/b, indicating a lighter turnaround schedule.

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Source: Platts, Reuters

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