June 5, 2012:

U.S. crude stocks fell more than expected last week while gasoline and distillate inventories jumped as refiners revved up operations more quickly than forecast, data from the American Petroleum Institute (API) showed on Wednesday. U.S. crude oil inventories fell by 1.765 million barrels in the week to June 1, the API said, compared with analyst expectations in a Reuters poll for a draw of 500,000 barrels. The drop in crude stocks was the second weekly reduction reported by the API since a string of successive builds. But gasoline inventories rose by 1.4 million barrels last week, double analysts' forecasts. Refinery operations rose by 1.5 percentage point to 88 percent of capacity last week, compared with forecasts for a 0.6 percentage point rise. Crude oil imports also declined last week by 355,000 bpd.

"The report is somewhat bearish. The rise in refined products assuages some of the perceived tightness in the market, although gasoline supplies continue to be challenged in the Northeast," John Kilduff, partner at Again Capital LLC. Domestic distillate stockpiles rose by 1.8 million barrels, compared with analyst forecasts for a 300,000-barrel build. Crude stocks at Cushing, Oklahoma, the delivery point for West Texas Intermediate crude, rose by 929,000 barrels, despite expectations that the mid-May start-up of the newly reversed Seaway pipeline may help drain the storage hub of excess oil. "Looking at this report, the supply coming to Cushing may continue to outpace attempts to move inventories to the Gulf Coast refining center, limiting WTI gains," said Kilduff. U.S. crude oil prices were unmoved by the day.U.S. crude for July delivery settled at $84.29 a barrel earlier in the day, rising 31 cents, or 0.37 percent in muted trade.

By Reuters

June 4, 2012:

BP Plc’s (NYSE: BP) Texas City refinery has dropped from the third largest in the U.S. to the fourth largest. Motiva Enterprises LLC    last week opened its Port Arthur refinery, the largest in the U.S., with full potential output of 600,000 barrels per day, The Galveston Daily News reports. That dropped the BP refinery, with 475,000 barrels per day, down a spot in the ranks. When Marathon Petroleum Corp. (NYSE: MPC) completes the expansion of its Garyville, La., refinery, the BP refinery will drop down another place, the Daily News reports. The Louisiana refinery currently has full potential output of 464,000 barrels per day, but after the expansion is complete, that could increase to at least 475,000 barrels per day.

The other refineries currently at the top of the list include Exxon Mobil Corp    .’s (NYSE: XOM) Baytown refinery, at No. 2 with 560,646 barrels per day, and its Baton Rouge, La., refinery, at No. 3 with 502,000 barrels per day. More than a year ago, BP announced the Texas City refinery was for sale.

By Houston Business Journal

June 4, 2012:

Exxon Mobil Corp.'s 149,500-barrel-per-day (bpd) Los Angeles-area refinery in Torrance, California, began a planned overhaul on Monday that is expected to last for several weeks. The refinery has shut a hydrogen unit and plans to shut a coking unit and hydtrotreater as part of the work, said Exxon spokeswoman Gesuina Paras. "Although we anticipate impact to production, Exxon Mobil expects to be able to meet its contractual commitments," Paras said.

By Reuters

June 4, 2012:

The Uganda government is pushing ahead with plans for an oil refinery despite warnings that it could be counterproductive if neighbouring Kenya makes commercially viable oil finds. Honey Malinga, the assistant commissioner Geophysics in the Petroleum Exploration and Production department at the Ministry of Energy and Mineral Development, says building a refinery is proceeding because the decision to have it in Uganda reached after  discussions between the heads of state of East Africa. The viability of building an oil refinery in Uganda, which was agreed before Tullow Oil farmed down part of its concession to Chinese oil giant, CNOOC and Total, has come into question since Kenya reported hitting oil early this year. Kenya, which already has a refinery and a sea route for evacuation of export oil products, is considered by some experts to be better positioned. It has also been argued that East Africa is a small market and can only support a few refineries.

“The issue of the refinery didn’t come up yesterday; it has been around for some time. The heads of state of the EAC in 2007 agreed that in order to have security of supply, a study should be carried out. It was done by the EAC and it found out that we should have more refineries in the region,” Malinga says.  “Against that background, Uganda did a feasibility study. So it doesn’t matter whether we have two or more refineries in the region provided they are here to help us,” he adds. The region’s total demand for oil is estimated at 164,000 barrels per day but it already has a 70,000 barrel refinery at Mombasa that is also operating at half capacity and can easily be upgraded. Another official, Irene Batebe, the Petroleum Officer-Refining at Uganda’s Ministry of Energy and Mineral development said studies for  setting up of a refinery in Uganda that were done in 2010 had shown it was viable to construct a refinery in Uganda. The study concluded that the region has a low refining capacity in the region.

She said the Uganda refinery is to be developed under a Public Private Partnership and that 29 square kilometers of land had been earmarked for the refinery. “The study recommended a phased approach to setting up of the refinery and a small one capable of producing 20,000 barrels per day would be set up first at a cost of US$600 million. Later one capable of producing 60,000 barrels per day would be set up at a cost of US$2 billion,” she said. The push for an oil refinery to meet local demand for oil products it partly based on projected opportunities from oil related industries, and infrastructure projects at the refinery.

According to the feasibility study conducted in 2010 by Foster Wheeler, a UK firm, the proposed refinery will produce diesel, kerosene and oil for electric power generation among others. A survey by the Uganda Investment Authority (UIA) in 2010 on constraints and Opportunities in Hoima, Masindi and Buliisa classified opportunities like infield services, inspections, international freight services, civil, electrical and mechanical engineering, environmental services, in field transport and specialist trades and indirect services such as construction of infrastructure like airfields, human resource, custom clearance, training, hotel/accommodation, emergency services, information and communication technology services, medical services, security, crane hire among others.

According to Rebecca Nalumu, who was the Principal Researcher of the survey, the project will attract investors to the areas of Buliisa, Hoima, Masindi and Uganda at large the opportunities were classified into specialised, direct and indirect. “There is likely to be a boom in real estate business, hotels and Tourism among others” she told The Independent. “We highlighted this to the locals and the country to embrace this development because it is going to be a marketing tool for their (locals) agricultural products, employment, trade, tourism and development of infrastructure.” The survey indicated that since Uganda is in exploration stage, more opportunities are yet to come and Uganda should develop a long term plan targeting support and capacity building for optimal participation in the sector.

The communities in the oil region currently survive on subsistence farming, fishing, and pastoralism. Development of the refinery will, however, displace over 30,000 people in the nine villages of Nyahaira, Kyapoloni, Bukona, Kabaketo, Nyamasoga, Rugashare, Katooke, Kijumba, Kitegwa and part of Kaayera in Hoima district. The Ministry of Energy and Mineral Development has earmarked Shs 5 billion for their compensation.

By The Independent

June 4, 2012:

A surge in gasoline prices in Asia, buoyed by a recovery in Japanese demand to a two-year high, will end soon as refineries in China, India and Taiwan bring on new capacity and boost supplies of the automotive fuel.  Besides the new capacity, factors set to offset the rise in fuel demand in Japan, the world's third-biggest oil consumer, include Asian plants coming back on line after maintenance, outages and a seasonal slowdown in requirements. That will close off the window of opportunity for refineries and trading houses to cash in on a tight gasoline market beyond the second half of the year.

"Most Asian refiners have spare capacity as far as gasoline production is concerned, and want to sell gasoline because it is a high-priced product," said Japan-based independent oil economist Osamu Fujisawa. Last year's deadly earthquake and tsunami shut about 31 percent of Japan's total refining capacity of 4.52 million bpd from 28 refineries, forcing the country to revert to being a net gasoline importer for the first time in about three years. Japan will remain a net importer even in 2013, said Alex Yap of FACTS Energy, but he expected a softer market ahead. "There was some support over spring, but refineries that were under maintenance are starting to return and that will increase supply somewhat." "There's new capacity coming out of India and China this year. So I am not expecting a tighter market year-on-year, or even when compared to 2010." The majority of the 2.5 million barrels per day (bpd) of refining scheduled to come online in 2012 is weighted towards the second half of the year, Barclays bank said in a report. Asia is the largest contributor to this volume, with more than 1.7 million bpd of capacity due over the next six months, with China leading the way with 760,000 bpd.

JAPAN'S HIGHEST IMPORTS IN A DECADE

Japan is expected to import 50,000 bpd of gasoline, up 16 percent from a year earlier, figures from Fujisawa show, notching up its highest imports in more than a decade. It imported 43,100 bpd last year. Japan was a net exporter of gasoline from 2008 to 2010 because domestic demand slipped as more buses and cars switched to using cleaner-burning natural gas as fuel. Average demand for the fuel was about 995,000 bpd in the period from 2008 to 2010 against 1.05 million bpd in the period from 2003 to 2007, when the Asian nation was a net importer.  Exports are projected to fall 10.7 percent to 25,000 bpd this year, said Fujisawa, who expects domestic demand to rise 1.2 percent to 990,000 bpd this year from 2011. Japan's imports tightened the market as a series of outages since late last year at key Asian export refineries constricted supplies at a time of rising demand from markets such as Indonesia, Asia's biggest gasoline importer, and Vietnam.

 Monthly gasoline imports by Indonesian state-run Pertamina are now around 9 million barrels, up 12.5 percent from last year. Vietnam, the second largest gasoline importer in Asia, imports about 92,602 bpd, mostly steady from a year ago. On the supply front, China, a key exporter, has cut shipments in the face of rising domestic demand, with monthly sales of close to 287,000 tonnes so far this year, or nearly 81,000 bpd, down nearly 15 percent from last year.

TIGHT MARKET

Asia's gasoline market has been grappling with reduced supplies since last year when a fire forced Taiwan's Formosa Petrochemical, the country's largest independent refiner, to shut its 540,000-bpd plant last July and Shell to idle its 500,000-bpd Singapore refinery in Bukom in September. That has pretty much left South Korea as the only key exporter to the region to fill the gaps. And because of its proximity to Japan, most supplies have headed there. "About 90 percent of Japan's imported gasoline in 2011 came from South Korea," said Fujisawa. "We expect most of the gasoline imports to Japan in 2012 will still be from South Korea." The supply tightness and spurt in buying pushed profits from processing a barrel of crude into gasoline to a 5-1/2 month high of $13.41 a barrel in April. Outright prices for Asia's benchmark 92-octane gasoline touched a high this year of $138 a barrel in April, close to an all-time high of $140 in 2010.

Japanese gasoline demand accounts for more than a fifth of Asia's total consumption at 4.5 million bpd, according to Victor Shum, senior partner at oil consultancy Purvin & Gertz, which is now part of the IHS consulting firm.  "But Asia is long in gasoline supplies," he added.

TURNING AROUND

Refining profits from making gasoline have eased as participants prepare for the rush of supply. Gasoline cracks had fallen to $8.64 a barrel on June 1, down from $13.41 about two months ago. Despite the fall, the level was more than double the level of $3.65 around the same period last year. A key factor dulling sentiment is capacity addition in China, India and Taiwan. India's Mangalore Refinery and Petrochemicals Ltd. s raised the capacity of its plant in the south by 27 percent to 300,000 bpd, while a new refinery in Bhatinda, with a capacity of 180,000 bpd, has been fully commissioned, Hindustan Mittal Energy Ltd (HMEL) said in March. As a result, India could import about 8 percent more oil, or at least 260,000 barrels per day (bpd) in the fiscal year to March 2013.

China, on the other hand, will process about 500,000 bpd more crude oil this year with a spate of new refineries starting production, according to a Reuters poll in January. The full impact of the additions from both countries will be felt in the second half of the year. Taiwan's CPC is expected to start up a new 80,000 bpd gasoline-making unit that will produce 180,000 tonnes of gasoline a month. It has resumed sales of a 30,000-tonne spot cargo for July lifting after an absence of about seven months. Japan's Cosmo Oil is gradually expected to restore runs from July, increasing fuel availability. In April, Cosmo restarted a 100,000 bpd crude distillation unit (CDU) at its Chiba plant after a shutdown of more than 13 months to repair earthquake damage. Its remaining 120,000-bpd No. 2 CDU is now under maintenance and is expected to resume operations around the second half of July.

"If we work with the assumption that we do not see a repeat of all the outages in Japan, Taiwan and Singapore as seen last year, the market is not going to be anywhere near as tight," said Yap of FACTS Energy.

By Reuters