Texas Output Returning with Caution

Texas fuel makers are racing to restore operations knocked out by mid-February’s brutal winter storm, but they’re also casting a wary eye on improvements in the market and may be reluctant to come back at full throttle.

Refiners are gun-shy after 12 months of losing money in a market that was hit hard by Covid-19, prompting several plants to close or slash production. So, even as the market beckons with fatter profit margins, tighter inventories and signs of rising demand, they are weighing the risk of being stuck with a glut of fuel supplies again.

It’s easy to see why they would be tempted, though.

Gasoline inventories on the Gulf Coast plunged by 11 million barrels in the week ended Feb. 26 as the region’s refining capacity sank to a record low of less than 41%, while gasoline demand rose the most since May. The theoretical profit margin for refining crude oil into gasoline and diesel, known as the crack spread, is trending near its highest since February of 2020.

But demand for this time of the year remains significantly lower than in March 2019, when there was no pandemic, and no one can say for sure when life will come back to normal. Refiners are also facing rising costs for tradeable credits known as RINs that are used to show compliance with the nation’s Renewal Fuel Standard.

“Margins have improved a lot, especially FCCs,” said Robert Campbell, head of oil products research for Energy Aspects Ltd., in a reference to gasoline-making units. “But RINs are a killer! Adjusting for that, margins are not so great.”

As of Friday, seven of 18 refineries impacted by the storm, including those that shut all or some units, were able to operate normally. Most of the rest will likely restore operations by the end of this week.

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