* Rebound in European demand, increased US production to
* Weak European demand in Q1 contributed to lower diesel
* Marathon expects to run cheap US crude at Galveston Bay
By Kristen Hays
HOUSTON, April 30 Marathon Petroleum Corp
expects the narrowed spread between U.S. crude benchmark
West Texas Intermediate and London's Brent crude to widen again,
though not necessarily to the $20-plus level seen earlier this
year, company executives said on Tuesday.
That spread, which surpassed $20 in February but has dropped
below $10, has been a boon for refiners like Marathon with
multiple plants in the U.S. Midwest that are in close proximity
to cheaper U.S. inland and Canadian heavy crudes output.
On Tuesday, the spread between Brent and U.S.
crude settled at less than $9 for the first time since December
of 2011, and down from over $23 in February 2013. The spread
moved between $10 and $13 for most of April.
Gary Heminger, chief executive of Marathon Petroleum, told
Reuters in an interview that Europe's weak economy and a heavy
refinery turnaround season depressed demand, pushing down Brent
As those turnarounds wrap up, demand for Brent is expected
to rise, pushing prices up relative to WTI, he said.
In addition, he said crude stocks at the U.S. crude futures
hub in Cushing, Oklahoma, remain high at 51 million barrels, and
that inventory will decline to some degree as pipeline projects
increasingly come online and help relieve that glut.
Those include the startup this month of Magellan Midstream
Partners' reversed Longhorn Pipeline, and Sunoco
Logistics Partners LP upcoming startup of the first
phase of its Permian Express West Texas-Nederland crude pipeline
project. Both aim to move West
Texas crude to Houston or southeast Texas that otherwise would
be bound for Cushing.
Enterprise Products Partners' and Enbridge Inc's
expanded Seaway Pipeline also is moving crude from
Cushing to the Texas Gulf Coast.
But even with those projects and others, Heminger noted that
U.S. production is expected to keep growing, particularly in
Texas, North Dakota and the Gulf of Mexico as companies add
infrastructure to move crude to refineries.
"We think you'll see the spread widen back out," Heminger
Weaker European demand contributed to lower diesel exports,
as did competition from Motiva Enterprises' 600,000
barrels-per-day (bpd) refinery in Port Arthur, Texas, Mike
Palmer, senior vice president of supply, distribution and
planning, told analysts.
The company exported 121,000 barrels per day of diesel in
the first quarter, down from 151,000 bpd in the fourth quarter
"The market will dictate to us how much we actually export,"
Palmer said. "We continue to expect that exports are going to be
a very important part of our business and we are very positive
about exports going forward."
The company's 451,000 bpd Galveston Bay refinery in Texas
City is part of that optimism for exports. Marathon closed on
its $2.4 billion purchase of the refinery from BP Plc in
February, and executives said they are formulating crude slates
Palmer said the refinery, which helped push the company's
quarterly earnings up by 22 percent, has not yet run as much
WTI-priced crude as Marathon's other six plants.
He said Marathon sees value in running foreign sweet cargo
crudes, which is related to the aromatics business at the
refinery. But the company is working to optimize its crude
slate, and the Longhorn and Permian Express pipelines will help
bring in those cheaper crudes.
"As domestic crude continues to grow, we expect that we are
going to see that crude run by this plant," Palmer said.