Refinery Margins Resilient as Fuel Prices Rebound, Disruptions Continue to Roil Output

US refinery runs have remained suppressed after a winter storm knocked millions of barrels of capacity offline along the US gulf coast last month. Further unexpected disruptions have occurred in the weeks since, coinciding with an ongoing uptick in planned outages for delayed rounds of maintenance. Refiner margins have jumped back to multi-month highs in the wake of output cuts, as prices of gasoline and diesel remain resurgent.

Distillate inventories have been draining quickly in recent weeks and could get even tighter over the next month, as an EU embargo of Russian fuels is set to initiate on February 5. Though Exxon Mobil just completed a significant expansion of a major Texas refinery, large capacity additions remain increasingly rare due to aggressive anti-emission policies.

Related ETFs: VanEck Oil Refiners ETF (CRAK), Energy Select Sector SPDR Fund (XLE)

Per Energy Information Administration (EIA) data, US refinery runs fell by an unusually steep sum in the final week of December, declining by -2.329 million barrels per day (bpd), the largest weekly tumble in 22 months going back to February 2021. A significant portion of that downturn can be chalked up to severe winter storms that knocked millions of barrels of refining capacity offline along the Gulf Coast late last month, but much of that lost capacity has yet to be recovered.

The 312,500 bpd Deek Park refinery in Texas was one of the refineries affected by December’s winter storm, and was slammed again this week by severe weather after a tornado touched down near the refinery. That caused “operational upsets” at the plant and the “loss of on-site steam”, according to reports and tweets from Shell Deer Park Chemicals.

A further unplanned outage was reported at a diesel producing unit at PBF Energy’s Chalmette, Louisiana, which was shut following a fire on Saturday and could be out of service for at least a month. Reuters reports that Exxon Mobil begin planned maintenance on several units at its Baytown, Texas, petrochemical complex. Planned outages for maintenance are going to become increasingly common in the near future as many refineries bypassed maintenance last year to sustain breakneck capacity when fuel prices were soaring.

Even though gasoline prices came off the burner toward the end of last year, Reuters notes that US refiners are expected to report higher fourth quarter earnings over the next couple of weeks. For example, Valero Energy will…