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Of
Exxon Mobil
Corp.
at
Phillips 66
,
Energy companies are making huge profits by taking cheap, land-locked oil into North America and turning it into fuel.
The phenomenal growth in oil production has flooded pipelines and lowered crude oil prices in parts of Texas and Canada. This has created a boon for companies able to take advantage of the transformation into gasoline and diesel.
Nowhere has the opportunity been greater than near Canada, where crude is trading at $ 43 a barrel below US benchmark prices due to bottlenecks. This is painful for producers in this country, but very lucrative for companies with refineries nearby in Canada or in the Upper Midwest, ranging from Exxon to smaller fuel producers, such as
HollyFrontier
Corp.
"WE Refining has become a pretty attractive business model," said John Auers, Executive Vice President of Turner Consulting, Mason & Co .. "I do not think that will change any time soon."
Phillips 66, which claims to be the largest buyer of Canadian heavy crude oil in the industry, operated its neighboring refineries at 108% capacity in the third quarter, averaging $ 23.61 per barrel processed. This has raised quarterly profits to nearly $ 1.5 billion, an increase of 81% over the same period last year.
Exxon's chief executive, Darren Woods, explained that the refinery's access to cheap crude in Canada and West Texas had allowed him to make $ 3.2 billion in profits in the third quarter. highest total in four years. The company said it could process up to 500,000 barrels of Canadian crude oil per day from seven refineries.
"We are seeing the benefits of integration as we are taking advantage of the Permian and Western Canada's favored feedstock for our North American refineries," said Woods.
Just as John D. Rockefeller made a fortune in refining the crude oil extracted during the first US oil boom, refiners found a definite advantage, with the United States becoming one of the largest producers of crude in the world.
Oil production in North America has skyrocketed with rising oil prices over the past two years, rising 24% to more than 15 million barrels a day in July, according to the US Energy Information Administration .
Rapid growth has overwhelmed existing pipelines and prevented producers from moving all their oil to the market in areas such as Western Canada and the Permian Basin of Western Texas and New Mexico. Landlocked oil subsequently trades much less in these areas than oil piped to major sales centers such as Cushing, Okla.
Fuel manufacturers with access to cheap crude have reaped the benefits.
BP PLC
of the
Underlying quarterly earnings reached $ 3.8 billion, the highest level in five years, fueled in part by the company's impressive refinery located in Whiting, Indiana. The factory, inaugurated by Rockefeller's Standard Oil in 1889, is capable of handling roughly heavy crude from Canada.
According to S & P Global Platts, Canadian heavy crude oil traded on average $ 28 a barrel below US benchmark prices in the third quarter, while oil sold in the Permian was discounted at an average price of $ 14 a barrel. Oil in both regions is expected to remain relatively cheap for at least a year when new pipelines are expected to start operating.
The Permian, Canadian heavy crude and other similar products accounted for about 57 percent of the oil processed by HollyFrontier in the third quarter, the company told investors Wednesday. The Dallas-based refinery posted profits of more than $ 340 million, its highest income in the third quarter since 2012.
Refining companies that missed Canadian trade have shown in their results.
Marathon Petroleum
Corp.
Quarterly profits were down 18% from the same period last year, reaching $ 737 million, in part because some of its Midwest refineries were no longer maintained. The company told investors it was about to process about 500,000 barrels of Canadian crude a day. In the coming quarters, it is also expected to benefit from increasingly significant reductions in oil from the Bakken Shale in North Dakota.
"We see this as a perfect storm," said Rick Hessling, senior vice president.
Oil from Clearbrook, Minnesota, one of the Bakken crude trading centers, was selling for nearly $ 13 below US benchmark prices this week, according to S & P Global Platts.
Domestic demand for diesel and other fuel oils remains high, but data from the Energy Information Administration shows that gasoline demand has decreased compared to last year, as oil prices have risen and refiners have operated at full capacity, thus strengthening stocks.
"The real surprise, especially on the gas side, is the very high utilization of the refinery," said Gary Simmons, Executive Vice President of
Valero Energy
Corp. "You have seen a 2 to 1 increase in production relative to demand, which has resulted in a surplus in stocks."
The export market has been a key release valve. US exports of refined products exceeded 5.3 million barrels a day in October, an increase of 33% over the previous two years, according to the EIA. Major buyers include Mexico, Canada and Japan.
"If you can get your hands on cheap crude oil, you have an incentive to run it and then hope to find a home for it," said Amy Kalt, consultant for Baker & O'Brien Inc., a consulting firm. in energy.
Write to Rebecca Elliott at [email protected] and Bradley Olson at [email protected]
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