Saturday, August 6, 2022

Valero and Magellan Midstream on refined product demand

The Biden administration is claiming that refined product demand in late July was lower than in July 2020... here's what Valero (2nd largest refiner in the U.S.) has to say about it:

Manav Gupta -- Credit Suisse -- Analyst
Guys, I would actually ask only one question, and that is basically, can you help us understand the demand dynamics out there, there were some worries on demand destruction than there were some worries on recessionary demand. The conversations we are having indicates that's not the case, but you have the most diversified footprint. So help us understand gasoline or diesel, what are you seeing in terms of demand out there? And I'll leave it there. Thank you.

Gary Simmons -- Executive Vice President and Chief Commercial Officer
Manav, this is Gary. I can tell you through our wholesale channel, there's really no indication of any demand destruction. In June, we actually set sales records. We sold 911,000 barrels a day in the month of June, which surpassed our previous record in August of '18 where we did 904,000 barrels a day.

We read a lot about demand destruction, mobility data showing in that range of 3% to 5% demand destruction. Again, we're not seeing it in our system. We did see a bit of a lull in the first couple of weeks of July, but our seven-day averages now are back to kind of that June level, with gasoline at pre-pandemic levels and diesel continuing to trend above pre-pandemic levels.
And Magellan Midstream (54 refined product terminals in 15 states):
In terms of high commodity prices and the gives and puts on demand, as we've mentioned many times in the past, gasoline and generally transportation demand is fairly inelastic. I think we were maybe testing that a little bit in early July with the prices we saw upon them. But we haven't, I don't think, broken that inelasticity. I still think it's very inelastic. So even with higher commodity prices, as long as they stay within sort of an expected range, not too extreme, we don't see a lot of commodity risk up -- whether prices are up or down really driving that volume one way or the other unless you get to an extreme, which again, we may have tested in July, but we've come off of those extremes.
We'll see who's right.

Note that when fuel prices spiked in June, the EIA did not publish their data for two weeks because of a "voltage irregularity," and once publication resumed after this "pause," the data has no longer seemed congruent with what other sources are reporting.

1 comment:

CP said...

Here is Marathon Petroleum (MPC) for good measure - the largest refiner (16 refineries and over 3 million barrels per day of refining capacity):

*Jet fuel demand continued its recovery, up nearly 20% from the same quarter last year, with the increased resumption of travel. Gasoline demand remained very resilient through the quarter in part due to the start of the summer driving season. Diesel demand after a strong beginning to the year, softened a bit in the second quarter due to lower trucking volumes. During the second quarter, in order to meet robust customer demand, we ran our refining system at full utilization.

*But looking forward, we expect tight supply, low inventory levels and strong global demand to continue to incentivize high refining runs into the third quarter.

*So early in July, we had a little bit of a speed bump in and then around the 4th of July where demand was slightly below where we thought it should be. Ever since then, though, we've seen week-on-week increases and demand is picking up really across the board, but specifically in gasoline, diesel steady. And as Mike said in his opening comments around jet. Jet is 20% over quarter-on-quarter 2Q, anyways of -- from where we were a year ago, and we're getting very strong indicators from the airlines and the travel industry on domestic travel via jet. Specifically, going forward, we're seeing a very resilient consumer with a lot of pent-up demand and the trends look very promising. Now certainly, you have the headwinds of inflation, rising interest rates, etc. But right now, I would say the falling street price that has been permeated by the falling WTI market is winning the day. And the consumer is showing us very positive demand signals today, and we view that going forward as well.

* I will say, fundamentally, if you look at where inventories are across the energy sector, they're either at or below five-year averages. We're getting good demand signals from the consumer. And we're seeing really solid feedstock differentials.