The demand for gasoline and jet fuel has taken a hit as a result of nationwide lockdowns across the US since late March 2020 due to the COVID-19 pandemic, according to GlobalData.

The piling up of stocks has caused challenges in the form of mounting inventory costs while storage concerns of refined products with shorter shelf life has added additional strain to the diminishing profit margins.

A lack of contingency plans to address these challenges has forced US refining companies to fall back on implementing remedial actions such as reducing operational capacity and slashing capital expenditure that can see off the current depressed market situation.

“Several refineries have reduced their operating capacities while a few others have decided to suspend operations to navigate through the current crisis,” detailed Haseeb Ahmed, Oil and Gas Analyst at GlobalData.

“BP plc’s Whiting refinery, with a capacity of 430 million barrel per day (mbd), has decreased its crude runs by 30 per cent due to a sharp fall in fuel demand amidst the COVID-19 outbreak; Total SA’s 238 mbd Port Arthur III refinery has reduced production rate to nearly 60 per cent. Few other refineries, such as the Martines I operated by Andeavor in the US, has suspended the operations to tackle the devastating impacts caused by the virus.”

Image source: GlobalData.

Some refiners in the US have also reduced their capex in response to the economic slowdown and adverse impacts of COVID-19.

ExxonMobil Corp slashed its overall consolidated capex by US$10 billion in 2020, from the initial plan of US$33 billion, while Chevron Corporation has reduced by US$6 billion, indicating the magnitude of the impact that the current crisis has on the region’s refinery sector.

“Besides prioritising capex and saving on cash to mitigate the effects of economic slowdown and lockdown, companies may look to restructure their businesses to evaluate diverse opportunities,” commented Ahmed.

“Refiners are likely to continue analysing the impact of COVID-19 on their operations and investments while keeping operational readiness for new business opportunities. However, they are expected to remain focused on key growth projects, ensuring long-term competitiveness.”