Crude markets lag on IMO change: PBF

Heavy refiners have yet to see crude prices reflect a shrinking market for sulfurous products, US independent refiner PBF Energy said today.

The company still expects to take advantage of cheaper sour feedstocks in the second half of the year as the global marine fuels market moves to a lower-sulfur standard. The International Maritime Organization (IMO) will require on 1 January 2020 that marine fuels move to 0.5pc sulfur emissions, down from the current 3.5pc sulfur.

US complex refiners such as PBF expect that change to make higher-sulfur components blended into the marine fuel market today compete with sour crudes for space in their facilities. PBF Energy can move more than 50,000 b/d of resid directly into its crude and coking units, the company said today.

But while higher sulfur and low sulfur fuel oil prices have begun to shift in the second half of this year to account for the marine fuel changes, the spread between light and traditionally sour heavy crudes has not budged.

"The product markets, from our view, are definitely way ahead of the crude market, as it relates to IMO," senior vice president of supply Tom O'Connor said. "Crude markets are very much torn between the narrow light-heavy environment that we are in today and are definitely undervaluing the crude slate changes that are pending on the horizon as we go into an IMO world."

The company had lowered its outlook for ultra-low sulfur diesel (ULSD) demand associated with the change, in line with other US refining peers. Initial outlooks had expected the 15ppm diesel fuel to make a costly but reliable blendstock for the first years of the marine fuel transition.

But refiners have instead increasingly used vacuum gasoil (VGO) diverted from gasoline-producing fluid catalytic cracking (FCC) units to supply components for the lower sulfur marine fuel. The strategy would tie marine fuel demand to both the diesel and gasoline markets, chief executive Tom Nimbley said.

"Gasoline gets sloppy, you just take gasoil out of the FCC and maybe sell it as a 0.5pc compliant fuel," Nimbley said. "I think there are going to be a number of knobs that turn and we will be supplying the fuel in different ways."

PBF still expected to take advantage of complex refining capacity in the near future. But heavy and sour crude processing fell in the second quarter amid maintenance and poorer margins. Light crude processing accounted for 26pc of the overall PBF crude slate, its highest level since the second quarter of 2016.

The refiner imported 75,000 b/d of heavy Canadian crude to its 190,000 b/d refinery in Delaware City, Delaware, during the second quarter. Railed crude imports would fall to 55,000-60,000 b/d in the third quarter. An unexpectedly long 40-day turnaround project on a Delaware City coker cut second quarter heavy throughputs.

PBF has no more planned maintenance for 2019.