The loss of production from ConocoPhillips' shuttered 185,00 b/d Trainer, Pennsylvania, refinery, has helped spawn a tighter heating oil supply, correspondingly higher differentials and provided a glimpse into the region's transformation, as the loss of additional refining capacity continues to loom, according to market sources.
In the week following the September 30 shutdown of that plant, US Atlantic Coast heating oil differentials surged to a three-month high of November NYMEX heating oil contract minus 0.45 cents/gal.
Midday Friday, USAC heating oil was trading down 5 points at November minus 0.50 cents/gal, still an unusually strong level for this time of year.
One year ago, USAC heating oil was assessed at 2.00 cents/gal discount. Since January 2010, USAC heating oil differentials averaged a 1.56 cent/gal discount.
While other factors are also contributing the bullish numbers -- a surge in exports, issues at other refineries, light resupply -- the loss in Trainer production is a key driver, sources said.
Hence, should ConocoPhillips not find a buyer for its plant, and should Sunoco not find buyers for its Philadelphia and Marcus Hook refineries, which continue to operate at reduce rates, the resulting 690,000 b/d in USAC refining capacity would likely reverse the region's fundamentals as a chronically long distillates market, sources said.
The market is getting a partial sampling of that production loss, as the 175,000 b/d Marcus Hook, Pennsylvania, refinery entered a turnaround this week, including idling its crude unit, which has helped push USAC heating oil numbers higher.
USAC ultra low sulfur diesel and jet fuel, on the other hand, have not been impacted by the downed production, and as such have seen their differentials fall through the week.
That's largely because the Colonial Pipeline's recent distillate cycles have been more loaded with US Gulf Coast-produced ULSD and jet than with heating oil, sources said.
Yet that disparity in resupply -- and subsequent opposite directions of differentials among ULSD, jet and heating oil -- underscores the reliance upon the Colonial Pipeline for the region's supply, a reliance that will grow proportionately with the loss in local refinery production.
And that growth is already underway, according to the Energy Information Administration.
USGC refiners shipped to the USAC market 12.8 million barrels of jet fuel via Colonial in July, according to the EIA's latest data. For the same period one year ago, the volume was 1.08 million barrels less at 11.7 million barrels.
ULSD shipment saw a similar year-over-year boost, with 15.45 million barrels sent via pipeline to the USAC in July 2011, the highest ever for that month, versus 15.26 million the year prior.
