Blog April 03, 2020

In the course of a few weeks, the global oil market has been thrown into turmoil. Market pressure began when OPEC talks of production cuts reversed into a production war, with Saudi Arabia and Russia maximizing production. As crude benchmark prices plummeted, the novel coronavirus continued to spread and become a global problem with far-reaching market impacts. The Covid-19 pandemic rattled the demand sector and U.S. refiners have found themselves in a drastically reduced margin situation.

To contain the spread of coronavirus, numerous municipalities and states have issued orders for citizens to stay at home, putting a massive dent in gasoline demand as workers no longer commute. As a direct response, gasoline cracks plunged from $1-3/bbl vs. Brent to the low of $-8.1/bbl as of March 23. With inventories already seasonally high, storage availability concerns have pushed gasoline to a steep discount to Brent, decimating refinery margins and likely suppressing refineries to minimum operating rates.

Geospatial analysis of known Covid-19 cases and refinery impacts in North America (as of March 26)
Figure 1: Geospatial analysis of known Covid-19 cases and refinery impacts in North America (as of March 26) Source: U.S. CDC, Genscape

Refinery Demand Response

Several U.S. refiners have announced run rate reductions and delays in planned turnaround work due to significantly decreased refined products demand and social distancing mandates in response to the coronavirus pandemic.

Forecast refinery crude oil run cuts in response to decreasing demand.
Figure 2: Forecast refinery crude oil run cuts in response to decreasing demand. Source: Genscape, Wood Mackenzie

From a refiner’s perspective, the virus and ensuing restrictions seem like the perfect storm, with inventories at seasonal highs and maintenance season just gearing up. Instead of shutting down, those refineries slated for maintenance will reduce rates, while continuing operations and pushing out product. Gasoline inventories are close to all-time highs, while crude stocks are about 80 million barrels lower than the high of 2017. This contrast is a likely driver behind the sudden drop in gasoline prices relative to crude.

List of refineries’ crude run reduction due to decrease in demand (as of March 26). Source
Figure 3: List of refineries’ crude run reduction due to decrease in demand (as of March 26). Source: Genscape

More refiners are postponing maintenance due to lack of workers to execute turnarounds, exacerbating the low-price environment as these refineries continue pumping out product into a saturated market.

List of refineries postponing maintenance due to social distancing measures (as of March 26).
Figure 4: List of refineries postponing maintenance due to social distancing measures (as of March 26). Source: Genscape

North America Crude Oil Demand

North American crude runs are expected to decrease 1.363mn bpd year-over-year in 2020. This projection is down significantly from our previous forecast, which was set to grow 76,000 bpd. At the start of 2020, all refinery operator attention was towards IMO 2020, and few predicted the devastating impact of coronavirus and corresponding demand shock.

Genscape North America Crude Oil Runs Forecast predicts sharp short term decline in crude demand with relief in second half of 2020.
Figure 5: Our North America Crude Oil Runs Forecast predicts sharp short term decline in crude demand with relief in second half of 2020. Source: Genscape

Refinery operators have responded in three ways to address the global pandemic:

  1. Reducing crude run rates to near-minimum levels
  2. Postponing maintenance and construction projects
  3. Reducing non-essential personnel to curb contamination

We are expecting Q2 2020 North America runs to decrease by 3.064mn bpd. In 2021, we begin to see some relief and are expecting North America demand to rebound and grow 2.133mn bpd year-over-year.

Get More Information

Our North American Refinery Intelligence Service combines observations obtained from infrared cameras with in-house analytical and technological expertise to provide an unrivaled view into near-real-time operations at U.S. and Canadian refineries. Our service provides subscribers insight into supply and demand with information on intra-day changes in the status of product-specific units at refineries.

Our North America Crude Oil Runs Forecast examines proprietary refinery infrared camera signals, publically available turnaround information, and forward crack spreads to guide an industry-leading crude oil demand forecast. The report provides a three-year outlook for crude oil demand in the U.S. and Canada, and individual refinery monthly run breakouts.

To learn more about these reports or to speak to an expert, click the links above or contact us.