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March 21 (The following statement was released by the rating agency)
An exceptionally cold North American winter has run
distillate inventories to historically low levels and persistently favorable
crude spreads that has positioned U.S. refiners for a strong 2014, according to
Persistently cold weather in North America linked to the polar vortex led to
heavy heating demand across major population centers in the U.S. and has
depleted distillate inventories. At the beginning of March, total distillate
inventories had fallen to approximately 114 million barrels, according to Energy
Information Administration data. This is well below the five-year average of 141
million barrels and is at the lowest level since 2005.
We believe low inventories are likely to keep distillate crack spreads strong
over the course of the year, which in turn should help keep utilization rates
high and overall refinery economics robust. Low distillate inventories may also
help gasoline crack spreads by delaying the switch from distillate production
mode to maximum gasoline production mode at refineries.
While cold weather has also pushed natural gas storage to historically low
levels, natural gas prices remain reasonable relative to historical levels and
when compared to prices in competing refining centers such as Europe or Asia.
Wide crude spreads also point to a reasonably robust year for refiners.
Brent-WTI spreads -- which have been in the $6-$12/barrel range this year --
have eased from the very high levels seen in 2011-2012 but are still high
relative to historical levels. Easing spreads reflect the impact of the many
pipeline projects that have begun to de-bottleneck landlocked shale crudes
headed for Cushing and refining centers on the coasts. These projects include:
the Seaway Pipeline (online 2013 at initial 400,000 barrels per day ;
expansion to 850,000 bpd 1H14); Keystone XL's southern Leg (startup in 2014,
expected to rise to 830,000 bpd later in the year); the Longhorn pipeline
reversal (225,000 bpd rising to 275,000 bpd in 2014); the BridgeTex pipeline
(300,000 bpd); and numerous other projects.
Other spreads have also widened, including the heavy-light crude spread that is
a proxy for coking economics. This spread -- embodied in the Brent-Maya
differential -- has increased to the $15-$20/barrel level over the past few
months, offering cheaper feedstocks to higher complexity refiners in the Gulf
and elsewhere. Heavy-light spreads have widened due to the combination of more
railed heavy crudes reaching the Gulf Coast and more generally from increased
use of shale crudes, which appears to be putting pressure on heavy crude grades.