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US oil refiner warns lower margins could persist as long as coronavirus spreads from SNL Energy Finance Daily US oil refiner warns lower margins could persist as long as coronavirus spreadsByline: Everett Wheeler PBF Energy Inc. executives said Feb. 13 that the ongoing coronavirus epidemic in China is temporarily undermining the impact of tighter marine fuel sulfur standards, signaling a bearish outlook for the beginning of 2020 that could last as long as the virus continues spreading. Known as IMO 2020, the standards lowered the sulfur cap on marine fuel from 3.5% to 0.5% on Jan. 1. Observers expected the change to boost refining margins by reducing prices for high-sulfur feedstocks, such as sour crude oil and high-sulfur fuel oil, and boosting prices for distillate. But executives said the coronavirus outbreak has compounded the effect of the mild winter's reduction of heating fuel demand. Nevertheless, PBF posted fourth-quarter 2019 adjusted earnings of 60 cents per share, beating the S&P Global Market Intelligence consensus estimate of 48 cents per share, which executives partly attributed to the market's preparation for the tighter sulfur standards. "Oil demand losses in the first quarter have outweighed the IMO-related benefits we were seeing in [the fourth-quarter 2019]," PBF Chairman and CEO Tom Nimbley said during the company's fourth-quarter 2019 earnings call. "The industry opportunities represented by IMO have not gone away, rather the pause button has been hit. I would guess that we would see a recovery on IMO sometime in the early second quarter, but that is going to be completely dependent on what happens with the virus." On Jan. 29, Marathon Petroleum Corp. executives downplayed the new virus' impact to their business. But the latest remarks from PBF executives represent an increased level of concern. Meanwhile, expectations for the impact to the broader oil market range from a sharp, short-term decline in global oil demand that abates by the second quarter, to the first year-over-year decline in oil demand since the Great Recession. "I don't think there is a price today that is not affected by what's going on in China," PBF President Matt Lucey said. "The ramifications of the virus and its impact on demand, and then its subsequent resulting cuts in China that's been through their refining system ripple through every single price and every single crude and every single resid barrel that you can count." Looking ahead, the duration of the outbreak remains uncertain. In China, the World Health Organization reported 3,073 new coronavirus cases on Feb. 10, 2,484 new cases on Feb. 11, and 2,022 new cases on Feb. 12. Some observers interpreted WHO data showing a slowing rate of new infections in China as a sign that efforts to contain the outbreak were bearing fruit. But the same week, Chinese health workers in the Hubei province began using CT scans to diagnose the virus more quickly. The same day the WHO announced 2,022 new cases, Chinese officials said they had confirmed 14,840 new cases of the virus in China's Hubei province relying on the new methodology. |
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