By Rebecca Elliott
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 9, 2020).
Americans are starting to get back behind the wheel, welcome
news for the companies that turn oil into gasoline and diesel.
Fuel makers including Valero Energy Corp. and Phillips 66 have
said they expect gasoline demand to continue to rebound after
plunging to roughly half of normal levels in early April, as states
reopen from lockdowns imposed to limit the spread of the new
coronavirus.
As a result, some refiners are looking to produce more gasoline
again after choking back output in recent weeks. Such a move should
help keep prices at the pump low for longer. Regular gasoline
averaged about $1.80 a gallon in the U.S. on Thursday, down from
$2.89 a year earlier, according to the price tracker GasBuddy.
"People have been cooped up, they want to drive," Phillips 66
Chief Executive Greg Garland told investors recently, offering a
glimmer of hope as the largest U.S. refiners posted their worst
quarterly earnings in years.
Marathon Petroleum Corp. reported a first-quarter loss of $9.2
billion, the company's largest quarterly loss on record, FactSet
data show. The company took $12.4 billion in charges tied to items
that include the value of its refineries, pipelines and inventory
of oil and refined products.
Phillips 66's quarterly loss, at $2.5 billion, was its largest
ever. The company attributed it in large part to impairments, lower
refinery utilization and thinner margins. Valero reported a $1.9
billion quarterly loss, its biggest since 2008.
It wasn't that long ago that refiners were raking money in as
soaring U.S. crude production created regional bottlenecks,
allowing them to access pockets of relatively inexpensive oil.
Fuel makers typically do well when oil prices are low because
people drive more. But the recent oil-price crash has largely been
driven by a rapid decline in demand as people stay home and travel
less to avoid contracting Covid-19. That means the second quarter
is expected to be grim for refiners, too.
Nevertheless, fuel makers were generally optimistic about an
eventual recovery in appetite for their products, saying they think
gasoline consumption will continue to climb, even as people remain
wary of getting on an airplane.
"We see a fairly gradual recovery in demand," Gary Simmons,
Valero's chief commercial officer, told investors in late
April.
Mr. Simmons said he expects gasoline demand to return eventually
to around pre-Covid-19 levels, explaining that some people will
embrace driving over public transportation because of concern about
coronavirus transmission, offsetting those who continue to work
from home.
Refiners sharply curtailed fuel making in March and April as
businesses closed and airlines grounded planes, running their
facilities at an average of about two-thirds capacity in mid-April,
Energy Information Administration data show. That level is down
from about 90% capacity a year earlier.
Companies adjusted their operations to minimize their output of
jet fuel and gasoline in favor of diesel, which is used to power
the trucks that remained on the road to transport food and other
necessities.
But fuel makers have generated so much diesel that stockpiles
are rising, federal data show. Gasoline reserves, while still quite
high, are falling as demand inches back up. U.S. gas consumption in
the week ended May 1 was up roughly a third from its low four weeks
earlier, although still well below demand a year ago, according to
the EIA.
"There's probably a few months before we can really give a
better sense for exactly how this is going to play out, but we're
definitely off the lows and seeing some nice improvement," Timothy
Griffith, president of Marathon Petroleum's Speedway gas station
chain, said recently. The Ohio-based refiner is responding by
tweaking its systems to generate more gasoline and less diesel.
Average prices at the pump for regular gasoline in the U.S. fell
as low as $1.74 a gallon in late April, their lowest level since
February 2016, the depths of the last oil crash, GasBuddy data
show.
Prices will likely only go up from here, but gasoline should
remain cheap by historical standards for some time as Americans
burn through the excess fuel that has built up in storage, said
Patrick De Haan, GasBuddy's head of petroleum analysis.
"There's a very strong possibility that though prices have
started to move up, we may be looking at an overall period of six
to 12 months when prices remain somewhat depressed," Mr. De Haan
said.
Write to Rebecca Elliott at rebecca.elliott@wsj.com
(END) Dow Jones Newswires
May 09, 2020 02:47 ET (06:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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