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US distillate exports

Hydrocarbon Engineering,

In July of this year, US exports of distillate fuel reached a monthly record of 1.4 million bpd. For the third quarter of this year, they averaged more than 1.3 million bpd. This level is up 30% from the 1 million bpd export level during the third quarter of 2012. Continuing growth around the world in global distillate consumption has encouraged exports and this has supported high levels of US refinery runs and increased backwardation during the last tow summers on the heating oil futures curve.

Distillate demand

The International Energy Agency (IEA) expects global distillate demand to be 27 million bpd in 2013. From 2008 – 2009 it was a key component of the growth in global liquid fuels demand after the recession and since 2009 has increased by 10% to 2.4 million bpd. Almost all growth is attributed to the expansion in the emerging economies of non-OECD countries. Distillate fuel consumption does indeed tend to be linked with economic growth, especially when it comes to manufacturing. However, despite global growth, US distillate consumption has dropped in recent years with a 460 000 bpd drop from 2007 figures. The consumption declined as a result of fewer heavy duty truck miles travelled, in conjunction with fuel efficiency gains all round. US distillate consumption has however risen modestly in the first three quarters of this year and it is expected to average 90 000 bpd more for the full year than last year.

Distillates and refineries

US refinery runs have been helped by the global distillate demand increase also. US refiners have increased distillate exports in recent years partly due to the smaller domestic market however, exports have increased more than demand has declined and even with modest US demand growth this year, exports have continued to increase. The competitive advantage of US Gulf Coast refiners is shown in the increased export levels, which have supplied almost 80% of US distillate exports in the first nine months of this year.

The competitive advantages amongst US Gulf Coast refiners are access to competitively prices natural gas and crude oil inputs, significant coking capacity to produce more high value products from a barrel of crude and easy access to the markets of Latin America, which are short on distillates. Due to these advantages, US refinery gross inputs have averaged 16.3 million bpd in the third quarter of this year and inputs exceeded 16.5 million bpd for the week ending July 12th 2013, the highest levels since 2005. Refinery utilisation has averaged 88% this year, which is up from an average of 86% over the last five years.

What next?

The EIA predict that US distillate export levels will depend on several factors, the most important being the pace of global refinery capacity expansions. Approximately 2/3 of US distillate exports during the first nine months of this year were to Central and South America and Mexico, figures similar to that of 2007. If refinery capacity expands over the next few years in Latin America or regions such as the Middle East, US refiners are possibly going to face increasing competition in distillate export markets. However, in the short term, the competitive advantages of Gulf Coast refiners should continue to support their current strong position within the global market.

Adapted from a press release by Claira Lloyd.

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