American refineries are operating more nimbly and responsive to market conditions now that the majority of domestic fuels capacity is owned by independent refining companies, according to a report released Friday.
As the integrated, slower-to-respond Big Oil companies sell refineries or spin off their downstream businesses, the new, independent refining owners are showing “more rapid response to low margins,” according to the report led by Jeff Dietert, senior research analyst for Piper Jaffray & Co., which recently acquired Houston-based Simmons & Company International.
That speed to respond was clear in late January and well into February when many refineries, particularly in the Midwest, cut back dramatically on fuel production when profit margins temporarily disappeared. A gasoline supply glut quickly turned into a short-term spike in gasoline prices.
Record levels of gasoline storage early this year “contributed to sharp inventory draws in recent weeks,” largely from independent refiners, Dietert’s analyst note stated. The moves also added to gasoline prices increasing after bottoming out in late February.
Earlier in March, Phillips 66 Chairman and CEO Greg Garland confirmed his company was among those that cut back production.
Houston-based Phillips 66 is part of the new wave of independent refiners leading the way. Phillips 66 spun out of Houston’s ConocoPhillips, just as independent Marathon Petroleum Corp. separated from Marathon Oil.
Likewise, Big Oil giants like Exxon Mobil and BP have sold some U.S. refineries of late. New Jersey-based PBF Energy bought Exxon’s Chalmette, Louisiana and Torrance, California refineries in recent deals. The Torrance sale is expected to be finalized in May.
Similarly, BP sold its Galveston Bay refinery to Marathon Petroleum and its Carson, California refinery to San Antonio-based Tesoro.
Overall, refiners are hoping for a stronger spring and summer period of profits after a weak first quarter of 2016. Refiners were hurt by an oversupply of gasoline storage, and gasoline prices dipping so low. As Garland recently noted, the industry simply produced too much fuel late last year and into January.
“Generally, when we look in the mirror, we find the enemy,” Garland said. “We had to work through that overhang in the first quarter.”
Many refineries though are undergoing seasonal maintenance now to shift to more expensive summer-blend gasoline. Gasoline demand is still increasing compared to last year, so refining companies have said they’re more optimistic entering the busy driving season in the second and third quarters of the year.