Platts margins reflect the difference between a crude's netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co. Those yield formulas include operational costs, such as power and natural gas.
The cracking margin for Nigerian Bonny Light fell to minus $14.86/barrel Tuesday from $5.64/b Monday, although pulled up to minus $7.98/b Wednesday. The cracking margin for Bakken crude railed in from North Dakota closed at minus $1.42/b Wednesday. While up from minus $3.73/b Tuesday, that was down from $7.66/b Monday.
Northeast natural gas prices soared this week as frigid temperatures lifted heating demand, while pipeline constraints limited prompt supply. The Transcontinental Gas Pipeline Zone 6 New York natural gas price -- which is used in the USAC yield formulas -- rallied to $123.81/MMBtu Tuesday from $15.42/MMBtu January 17. By Thursday, the price had fallen to the $43/MMBtu area as both demand and pipeline constraints eased.
USAC refining margins should pull back into positive territory should natural gas prices continue to fall. Northeastern power prices, which make up a smaller cut in the yield formulas, have tracked natural gas prices, but have yet to track them lower.
The day-ahead PJM Interconnect price has followed natural gas prices in the area, although has yet to follow them lower because of high demand. The PJM price was around $425/MWh midday Thursday, up from an assessment of $402.50/MWh Wednesday and $45/MWh January 17. HIGHER CRUDE PRICES PULL USGC MARGINS LOWRE
Margins on the US Gulf Coast have also fallen this week, but not on higher operational costs. The USGC is better supplied with natural gas, and refiners are paying lower prices. For instance, the natural gas cost to a USGC refiner cracking a light sweet crude was roughly 80 cents/b Wednesday, compared to around $13/b on the USAC.
The Light Louisiana Sweet cracking margin on the USGC closed at $6.96/b Wednesday, down from $12.83/b Monday. The Mars coking margin has fallen to $2.02/b from $8.47/b over the same period.
USGC yields have been stable this week, although spot prices in the region have risen. LLS was assessed at a $12.55/b premium to West Texas Intermediate Wednesday, up from $9.30/b January 17. Mars has risen to a $9.30/b premium from a $5.70/b premium.
"Regional grades around North America are strengthening, breaking out to the upside," Merril Lynch analysts said in a report Wednesday. "[M]uch of this recharged strength relates to very low US import levels..."
USGC crude imports on a four-week moving average were 3.47 million b/d the week ending January 17, according to data released Thursday by the US Energy Information Administration, down from 3.95 million b/d at the end of November.
"Low import levels are a reflection of LLS weakness in 4Q13, in our view," the analysts said.
LLS averaged at a $3.53/b premium to WTI in the fourth quarter, according to Platts data.
Supplies have tightened in the region. USGC crude stocks climed 870,000 barrels to 161.86 million barrels the week ending January 17, but were down from 197.16 million barrels at the end of December. Over that period, stocks have fallen to a 2% deficit to the five-year average from an 11% surplus.
