US demand for gasoline and jet fuel has taken a major hit as a result of nationwide lockdown restrictions across the country since the end of March
Oil refiners in the US are grappling with the loss of fuel demand and the impact of the coronavirus pandemic, says an industry analyst.
The virus has inflicted a significant negative effect on several key sectors, with the global oil market witnessing freefalling prices in March and April and record-low levels of demand.
In the US, demand for gasoline and jet fuel has taken a major hit as a result of nationwide lockdown restrictions across the country since late March, according to data and analytics firm GlobalData.
Additionally, stockpiling has caused challenges in the form of “mounting inventory costs”, while storage concerns of refined products with shorter shelf life has added “additional strain to the diminishing profit margins”.
Several US refineries have reduced operating capacities
GlobalData oil and gas analyst Haseeb Ahmed, said several refineries have reduced operating capacities while others have suspended operations to navigate the current crisis.
“BP’s Whiting refinery, with a capacity of 430 million barrels per day (bpd), has decreased its crude runs by 30% due to a sharp fall in fuel demand amidst the COVID-19 outbreak,” he added.
“Elsewhere, Total SA’s 238 million bpd Port Arthur III refinery has reduced production rate to nearly 60%.
“A few other refineries, such as the Martines I operated by Andeavor in the US, has suspended the operations to tackle the devastating impacts caused by the virus.”
Major US oil firm’s reduced capex following coronavirus impacts
GlobalData claims a “lack of contingency plans” to address the challenges posed by the pandemic has forced US refining companies to “fall back on implementing remedial actions”, such as cutting operational capacity and slashing capital expenditure that can “see off the current depressed market situation”.
It added that only a few refiners across the nation have reduced their capex in response to the economic slowdown and adverse impacts of COVID-19.
Big Oil member ExxonMobil slashed its overall consolidated capex by 30% to $23bn in April, from the initial plan of $33bn.
The Texas-based firm cited “low commodity prices resulting from oversupply” and “demand weakness” from the pandemic as key drivers behind the cutbacks.
Elsewhere, California-headquartered Chevron has reduced its capex by $6bn to $14bn for the year, which Ahmed said indicates the “magnitude of the impact that the current crisis has on the region’s refinery sector”.
“Besides prioritising capex and saving on cash to mitigate the effects of economic slowdown and lockdown, companies may look to restructure their businesses to evaluate diverse opportunities,” he added.
“Refiners are likely to continue analysing the impact of Covid-19 on their operations and investments while keeping operational readiness for new business opportunities.
“However, they are expected to remain focused on key growth projects, ensuring long-term competitiveness.”