the inexpensive crude have reaped the rewards.
BP PLC’s underlying quarterly profit soared to $3.8 billion, the highest level in five years, powered in part by the company’s massive refinery in Whiting, Ind. The plant, first opened by Rockefeller’s Standard Oil in 1889, is capable of running about 320,000 barrels a day of heavy crude from Canada.
Heavy Canadian crude traded for an average $28 a barrel below U.S. benchmark prices during the third quarter, according to S&P Global Platts, while oil sold in the Permian was discounted by an average $14 a barrel. Oil in both regions is expected to remain relatively cheap for at least another year, when new pipelines are set to begin operating.
Permian, heavy Canadian and other similar crudes accounted for about 57 % of the oil HollyFrontier processed during the third quarter, the company told investors Wednesday. The Dallas-based refiner posted profits of more than $340 million, its highest third-quarter income since 2012. Refining companies that missed out on the Canadian trade showed it in their results. Marathon Petroleum Corp. saw quarterly profits decline 18 % from the same period last year to $737 million, in part because some of its Midwest refineries were offline for maintenance. The company told investors it is now poised to process about 500,000 barrels of Canadian crude daily
It also expects to benefit in coming quarters from growing discounts on oil from North Dakota’s Bakken Shale. “We kind of see this as a perfect storm,” said Rick Hessling, a senior vice president.
Oil in Clearbrook, Minn., one of the trading hubs for Bakken crude, was selling for nearly $13 below U.S. benchmark prices this week, according to S&P Global Platts.
Domestic demand for diesel and other fuel oils remains high, but data from the Energy Information Administration show gasoline demand has fallen off from a year ago as oil prices have risen and refiners have operated at full tilt, boosting stockpiles.
“The real surprise, especially on the gasoline side, is just the very high refinery utilization,” said Gary Simmons, a senior vice president for Valero Energy Corp. “You’ve had about a 2-to-1 increase in production over demand, and it’s caused a surplus in the inventory.”
The export market has been a key release valve. U.S. exports of refined products topped 5.3 million barrels daily in October, a 33 % increase from two years prior, according to the EIA.
Top buyers include Mexico, Canada and Japan. “If you can get your hands on discounted crude oil, you’re incentivized to run it and then hope you can find a home for it,” said Amy Kalt, a consultant for Baker & O’Brien Inc., an energy consultancy.
A Phillips 66 refinery in Roxana, Ill. The company’s refineries operated at 108 % of capacity during the third quarter as oil drillers in Canada and West Texas found difficulty moving their product.