U.S. oil refiners are set to cut back production in the third quarter due to decreasing margins and a drop in demand from its peak summer levels.
Bloomberg reports that Marathon Petroleum will lower its refinery capacity utilization to 90% across its 13 facilities, down from 97% in the previous quarter. PBF Energy plans to reduce its processing rates to their lowest level in three years. Valero Energy will cut its daily operating rate from 3 million barrels to 2.86 million barrels per day, marking its lowest level in two years. Phillips 66 also intends to decrease its processing rates to the low 90s percentage-wise, down from 98% in the second quarter, which was the highest in five years.
Vikas Dwivedi, a global oil and gas strategist at Macquarie, told Bloomberg that “compressed refining margins are setting the stage for another round of significant refinery maintenance in the U.S. this fall.” He added that this maintenance could impact inventory levels and contribute to an increase in crude oil stocks in the U.S. for the remainder of the year.
U.S. crude oil inventories have been falling for six consecutive weeks, indicating strong fuel demand during the peak driving season. However, as summer ends, demand typically decreases, prompting refiners to adjust their production.
The pressure on refining margins is a global issue, largely due to China’s significant refining capacity, which has impacted margins worldwide even as Chinese refiners reduce their output. According to Bloomberg NEF, global crude oil inventories are expected to rise by the end of the year, despite new refining capacities such as Nigeria’s Dangote refinery and Mexico’s Dos Bocas facility. The increase in crude oil stocks is anticipated to result from production increases in Guyana, as forecasted by Bloomberg’s energy analysts.