US refinery closure should help product tanker market - Gibson

Jul 12 2019

The recent explosion at Philadelphia Energy Solutions’ (PES) 335,000 barrels per day Philly refinery has come at an opportune time for product tankers trading in the Atlantic.

The decision to permanently shut the facility will have longer term implications for product supplies into the US Atlantic Coast, Gibson Shipbrokers said in a report.


Freight markets were initially quick to react, with the benchmark UK/Continent –US Atlantic Coast 37,000 tonnes gasoline (TC2) route jumping from WS117.5 to WS160 in just two days.


However, the sharp increase in freight at the time started to impede arbitrage economics, forcing freight back down to WS140 a few days later.


Interestingly, the US/Europe gasoline arbitrage followed a similar trend, peaking recently before settling lower last week, as traders took a more measured approach to addressing the shortfall.


Since then, TC2 freight has settled in the WS140 to WS145 range, tracking a slightly narrower arbitrage. In short, the outage has helped lift TC2 to a higher level, but has not transformed dollars per day earnings on the route, Gibson reported.


Fundamentally, the outage is positive for product tankers, particularly MRs in the Atlantic. According to Platts, the refinery was producing around 150,000 barrels per day of gasoline and blending components prior to the outage and this volume will need to be sourced from elsewhere, as will the 100,000 barrels per day of middle distillates and 25,000 barrels per day of low sulfur fuel oil that was being produced by the refinery.


Domestic supply and stocks will of course provide some cover. However, inventories are at their lowest levels for this time of year since 2015, whilst peak gasoline demand season will continue to weigh on stocks, supporting import activity.


Underlying US gasoline demand also remains strong, having recently set a new record before easing back to hold close to record highs. Pump prices over the summer may prove to be key, however regardless of this, import volumes should remain supported.


The PES outage is therefore another support factor in the short term, however, for the market to move to, and then maintain higher levels, export volumes from Europe to West Africa, and the US Gulf to Latin America will also need to strengthen simultaneously.


Once the summer driving season ends, import demand will wane, with the impact of the disappearance of PES becoming less noticeable, Gibson concluded. 


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