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Deep US refinery maintenance seen easing in second quarter-IIR
March 4, 2013 / 9:21 PM / in 5 years

Deep US refinery maintenance seen easing in second quarter-IIR

* Around 676,000 bpd offline in Q2-IIR Energy
    * Significant drop from 1.13 million bpd in Q1
    * Turnarounds centered in Midwest, with 408,000 bpd offline

    By Sabina Zawadzki
    NEW YORK, March 4 (Reuters) - The amount of U.S. oil
refinery capacity in maintenance should decline by almost 50
percent in the second quarter compared with the first three
months of this year, according to data from consultancy IIR
Energy, boosting output of diesel and gasoline after an intense
work schedule so far in 2013.
    IIR Energy sees an average of 676,000 barrels per day (bpd)
of refining capacity being lost to maintenance work in the
second quarter, above the five-year average for this time of
year but a significant reduction from the 1.13 million barrels
it estimates was down in the first quarter. 
    Midwest maintenance will take 408,000 bpd out of capacity,
IIR Energy said, more than doubling a previous estimate reported
by Reuters on Jan. 18 for the second quarter largely because
work at BP's 405,000 bpd Whiting, Indiana, refinery has
been extended into the summer.
    The Whiting refinery is undergoing a $4 billion upgrade that
will substantially increase its ability to process Canadian
heavy crude. The plant's largest crude distillation unit has
been shut down since November as part of the project.
    "Planned turnaround should go down sharply," said Mike
Wittner, Head of Commodities Research, Americas, at Societe
    "Starting in April, month-on-month declines look to me
pretty sharp and steady. This is extremely seasonal and fits the
pattern," he said.
    Refinery maintenance in the first quarter will peak around
2.2 million barrels per day in March, IIR Energy said.
    Refineries with access to crude in the Midwest have enjoyed
greatly improved margins in recent years with the boon of cheap
domestic oil from shale formations such as the Bakken in North
    To reap the most profits, they have kept plants running as
long as possible without interruptions for repairs, but this
year they cannot avoid it. The first quarter average maintenance
level of 1.13 million bpd is far higher than the 780,000 bpd
that is the norm over the last five years, according to IIR
    IIR Energy specializes in supply-side research into energy
assets and plants and is a division of Industrial Info Resources
(IIR) which conducts research into project and plant spending.
Most refineries do not disclose their maintenance schedule.
    The growth in new crude supplies has outpaced the U.S. oil
sector's ability to build the infrastructure needed to move the
oil to coastal refining centers. Inventories at the Cushing,
Oklahoma, delivery point for U.S. oil futures have swelled to
record highs this year, lowering the value of the crude relative
to international prices. 
    U.S. crude oil prices are now around $20 cheaper than
international benchmark Brent crude, overturning a decades-old
trend of West Texas Intermediate trading at a premium to Brent. 
    High levels of maintenance at refineries naturally weigh
further on crude prices by reducing demand.
    "The Whiting refinery, where maintenance has been delayed a
little bit, will definitely keep more capacity off line in Padd
II than was originally expected," said Chris Barber, Oil Market
Analyst with Energy Security Analysis Inc (ESAI). 
    "All things being equal, with a part of that refinery down,
this can be more bearish on crude as you get closer to May, when
gas demand starts to pick up," he said. 
    But other analysts noted that a more significant negative
impact on U.S. crude from the BP project will come once all
units are fully functioning, because that is when the refinery
will switch the majority of its feed stock - 350,000 barrels out
of a capacity of 405,000 barrels - to Canadian crude.
    The significantly lower expected maintenance levels in the
second quarter, as compared to the first, should be bearish for
gasoline and diesel prices, although there are several other
factors at play, analysts said.
    "In an environment where products stocks have been built up
and we would see refinery runs at high rates, and given that
maintenance isn't as large as expected, I wouldn't really see
huge upward momentum for product cracks in the second quarter,"
said Miswin Mahesh, analyst at Barclays Capital in London.
    Societe Generale's Wittner said gasoline and diesel
differentials to their respective futures contracts should be
under downward pressure in the second quarter due to the lower
maintenance level.
    But he also noted maintenance was not always so significant
a factor in product prices, especially at a time when refinery
run levels are not maxed out and in the three months of the year
that precede the typical boom in demand during the summer.
    U.S. refinery runs have varied at between 84 and 89 percent,
according to weekly data from the U.S. Energy Information
Administration. When run levels are below maximum, plants can
ramp up production to compensate for others that are offline.
          IIR Data on Planned CDU Maintenance - 2013
                     In thousands of barrels
   January estimates     Latest estimates    5-year average 
        1Q        2Q       1Q        2Q        1Q       2Q
     1,132     357       1,134    676        780       501 
     122            8    122           8     116         87 
     313       176       304      408        106       129 
     611          29     631      115        444       157 
       31         52      15        52         12        20 
       55         92      62        92       101       109

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