Q2 2019 Earnings Call
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S.P.B.S. Q2, one nine.
Thank you and May I have your name.
Evan KBB I end.
Thank you and your last name.
From L.A.S.
L.A. and E.
Two ends and then in E correct.
And as in memory and then.
Oh I'm sorry, Thank you and what was your first let me give us all the fun.
Evan.
And your company please.
Era H E R.
Our E I.
Hey, I E R.
Okay. Thank you.
And your business phone area code first please.
Evan seven four.
Q 650 382.
In Q, you'll hear music until we start.
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[noise] well come to the PBF logistics second quarter 2019 earnings conference call and webcast. At this time all participants have been placed in a listen only mode and the floor will be opened for your questions. Following management's prepared remarks. It is now my pleasure to turn the floor Colin Murray of Investor Relations. Please go ahead.
Thank you Barry good morning, and welcome to todays PBF Energy earnings call with me today are Tom Nimbley, our CEO , Matt Lucey, our president.
Erik Young our CFO , Tom O'connor, our Chief commercial officer, and several other members of our management team a copy of today's earnings release, including supplemental information is available on our website.
Before getting started I'd like to direct your attention to the Safe Harbor statement contained in today's press release in summary, it outlines that statements contained in the press release and on this call, which express the company's or management's expectations or predictions of the future are forward looking statements intended to be covered by the safe Harbor provisions under federal Securities laws.
There are many factors that could cause actual results to differ from our expectations, including those we described in our filings with the SEC.
Consistent with our prior quarters will discuss our results excluding a 134 million after tax non cash lower of cost or market or LCM adjustment, which decreased our reported net income and earnings per share.
As noted in our press release, we will be using certain non-GAAP measures, while describing PBS operating performance and financial results.
Reconciliations of non-GAAP measures to the appropriate GAAP figures. Please refer to the supplemental tables provided in today's press release I will now turn the call over to Tom Nimbley.
Thanks, Colin good morning, everyone and thank you for joining our call today.
Our strong second quarter results reflect solid operational performance.
From our West coast mid continent, and Gulf Coast refineries.
And some operational headwinds on the east coast.
Product margins in all regions improved versus the first quarter, which boosted our refining margins.
And the Alberta, Alberta, curtailment limit the supply of economic medium and heavy barrels available on the market.
This has put pressure on complex refineries.
As we are not currently being rewarded for complexity.
We have responded by lining up our slates on the eastern Gulf Coast.
We do believe that our complexity will be rewarded on the backs of the upcoming IMO implementation and tier three gasoline.
In regards to IMO the situation continues to develop as we speak.
And we expect to see even more activity as we approach the fourth quarter and January Onest 2020.
It does put a line in the sand.
We believe that IMO will be a significant event for both products and light heavy crude differentials.
It is our view that low complexity refiners will need to shift to a lighter and sweeter crude slate.
In an effort to stop producing high sulfur fuel oil, which will struggle to find a home.
We believe that in the Atlantic Basin alone.
We could see a shift in the lightening of crude slates for less complex refineries. We estimate there is not meant to be at least 1 million barrels per day.
And could potentially be multiples of that number.
PBS refineries are ideally situated and have the flexibility and complexity to benefit from this shift.
One impact we have seen in the market recently as refiners shifted to running lighter crude, particularly light tight oil crudes.
Is the fact that we are seeing an excess of NAFTA, which is struggling to find a home with arcane for the gasoline pool being very tight globally.
Octane levels will be an area to monitor monitor going forward.
As the industry shifts to producing even cleaner lower sulfur fuels such as tier three gasoline.
As a company PBF is well positioned to capitalize on this market.
And all of our assets can produce tier three gasoline.
It will be interesting to see how the landscape develops over the next six months.
Consensus data is still calling for strong oil demand growth in the second half of 2019.
I have said many times the best way to be prepared to take advantage of opportunities in the market.
It is to have all assets operating well.
We intend to run our assets safely.
In an environmentally responsible manner, and reliably which will lead to profitability and improving market.
Thank you Tom.
Today PBF reported an adjusted second quarter income of 83 cents per share.
Second quarter EBITDA comparable to consensus estimates was approximately 299 million and adjusted EBITDA was approximately 310 million.
Our second quarter results included $31 million of RIN related obligations and that prevailing pricing. We expect full year 2019 rent expenses in the $125 million to $150 million range.
Consolidated Capex for the quarter was approximately 241 million, which includes $237 million for refining and corporate Capex and 4 million incurred by PBF logistics.
Our first half refining capex of approximately 485 million represents roughly 75% of our full year guidance of $625 million to $675 million and importantly includes the completion of all of our major maintenance and turnaround activity for 2019.
We ended the quarter with approximately 2 billion of liquidity with 1.8 billion at PBF energy and 265 million at PBF logistics, and our net debt to cap was 34%.
These figures include the 200 million in proceeds from the dropdown of the Torrance Valley pipeline and a $250 million debt repayment.
As we look forward to the back half of the year, we expect to generate significant free cash flow as a result of strong cracks relatively low capex and the normalization of working capital following our first stop bills.
Finally, we are pleased to announce that our board has approved a quarterly dividend of 30 cents per share.
Thank you Eric.
Our assets delivered throughput of approximately 855000 barrels per day with the exception of extended turnaround work at Delaware City.
Our assets ran well during the quarter and we were able to capitalize on the favorable favorable market conditions, especially in the mid con and on the West coast.
On the East Coast, we finished planned work at both Delaware and Paulsboro.
The Delaware turnaround on the fluid Coker ran approximately 40 days long as we encountered some unplanned work.
As a result coker availability was limited to just 20 days in the second quarter.
Looking forward all the work was completed during the quarter and we are expecting to achieve a four year run with that unit.
Our assets have a clear operational runway for the remainder of the year.
We are progressing with our strategic investments in the Chalmette Coker and the Delaware City hydrogen plant.
Both projects are on schedule and we expect the coker to be in service late in the fourth quarter and the hydrogen plant should be in service during the second quarter of 2020.
We continue to work closely with shell and the acquisition of Martinez.
Although the requested information to the appropriate parties.
Pending regulatory approval, we anticipate the transaction will close by the end of the year.
Lastly, the dynamics on the east coast have shifted with the outage of Pts.
It is still very early to develop really state what the outcome for the asset might ultimately be.
But the near term impacts are that we've seen the market tighten.
The P. us refineries supplied approximately 250000 barrels per day of clean products in pad one.
There is a whole to be filled that will likely come from imports off colonial pipeline.
With the outage more barrels are going to have to be attracted to the east coast and this should provide the transportation based benefit to PBF.
And other pad one refiners.
We remain intently focused on the aspects of our business that we can conclude can control and with our strategic decision to move our maintenance into the first half of 2019.
For the second half of the year.
Operator, that's our opening remarks were please take questions.
We will now open the call to questions. The company requests that all callers limit each turn to one question and one follow up you may rejoin the queue with additional questions.
If you would like to ask a question. Please press star and one on your Touchtone keypad, you may remove yourself from the queue by pressing the pound key.
Again that is star and one.
And we will go to our first question from Chris Sean Ral with Citigroup.
Please go ahead.
Hi, good morning, Thanks for taking the question.
I wanted to go back to sort of basic share on crude slates and the like.
Availability through the heavy and medium barrel availability or lack thereof.
So Tom.
You guys are looking at the back half of the year.
I wanted to get a sense of generally what you expect in terms of.
Kadien barrels and then what you're seeing on the market's waterborne and then sort of a second part of the question again.
The Gulf you were able to optimize on what you're getting some more medium barrels are going through now.
More than our expectations.
Running less likely than I would have expected.
It's like really good work there on the crude slate wanted to get a sense of where the Canadian barrels are coming from you know other sort of tactical opportunities, you're actually not necessarily substitute street for a light barrel and some of these.
I think will piggyback. This adds I'll take the beginning of it in terms of as we said I think.
No.
Hi, ammo is going to happen.
Denial is not an.
We are starting to see some movement, albeit relatively light we see some movement in the clean Dirty spread New York Harbor.
Moving why not a couple of dollars a barrel, but we expect as we go further into the fourth quarter and I think others have inclined on this.
As you start to get to where it's going to take 80 to 90 days to really start turn into system over to be ready on January Onest 2020.
You are going to start to see first.
3.5% heavy fuel oil pricing.
And ER and that will ultimately lead ultimately to a widening probably with a lag effect and I'll ask Tom oconnor to to add to that in a moment on the light heavy spreads.
As regard specifics.
Canada, obviously is slowly.
Increasing or decreasing the constraints that they are putting on.
We have seen some movement, although they frankly the prices have come in with W.T.I., Brent that Canadian by rail is still not economic we're significantly economic more breakeven, but we expect to see that a wide now to your point, though and this is again is a benefit of the system. We have we are a heavy.
We are very complex refinery.
Toledo runs 170000 barrels a day all light sweet crude over half of our slate in Delaware City has been moved to.
Light sweet crude.
You're right Chalmette, we've moved up on how much light barrels were moving of course, the maus LLS differential has incented that.
And we do have some flexibility to do more but frankly, we believe that won the cost but seeing that situation turned around Tom do you have anything you would add I think Tom the only thing so I would really I mean in terms of.
We did.
The second quarter, probably represents the trough crude by rail for US for 2019. So you certainly see some expense in terms of heavy volumes thing for Canada that was higher.
Usually higher in the second quarter than the trough was in the first quarter.
I think particularly as you look out further and even even going back for one second though we've been in a narrow world for quite some time right. So at this point a lot of shifts that have already expected to taking place have already taken place.
And now the market is looking forward to the third quarter, the fourth quarter and ultimately as IMO and that's one we're starting to see about a point.
Dissipate encourage.
Crude slate shifts.
Okay. Thank you very much for for the detailed answer that I wanted to shift to.
Talking there have been comments about.
Tier three gasoline standards and tightening the Austin market.
Question I think that we're all trying to.
Where where is the incremental supply locked in for any closing remarks.
Your views of it.
There's a few alfie projects coming up.
Refining system also.
To add to that capacity, but.
I think you haven't talked so much about tier three gasoline in the last few quarters because it's been.
It's on the back burner relative to other issues, but it's coming soon and so you know.
Hi, Thanks, good luck in getting working to get there.
Yeah, I'd say, let me first preface this by.
I think the industry is by and large ready for tier three gasoline.
And.
And in that regard.
Good managed companies will have fought for through the fact that there was going to be a paradigm shift on January 1st 2020, when you no longer have the tier two credits to purchase and a game is going to change so.
So I think by and large the industry's in reasonably good shape, there's two things here that I would point out.
One is the impact of the increased light sweet Sweet crude runs and as I said, particularly shale oil and if you are in lights refiner.
And you wind up running shale oil.
Well or light sweet crude it's very possible that you wind up with a surplus of NAFTA.
Coming out of your distillation units and you can fit it into your own reforming capacity the reforms that turn that Napa into high octane up finished gasoline I'll point out that one of the first things we did when we bought chalmette.
Because of whatever reasons, we think what we know where they were.
Naphtha, Hydrotreater and not the reformer and light ends plant, we've started up that block of units. So we actually have taken chalmette.
We would be in a position in chalmette, having not done that project that we would have had a surplus snapped up from around crude slate indigenous production and that would have been a headwind on capture rate, we've turned that around to where.
Now instead of selling nap that we actually produce our own indigenous NAFTA and by not there on the marketplace tactic taken advantage of the economics in that situation and turn it into a higher.
Percentage of finished product gasoline as to your question on other ways that you can make octane.
Well frankly, you can increase reformer severity and make octane.
Obviously.
I guess, what was Valero to just started up to $25000 day Appalachian unit, that's going to add some okay. There's another player on this is back then gets very short than ethanol can be a player as you bring it into the pool, especially if it's an easy 15.
Our position is while octane is going to be strong and part of the reason I finished strong in east comes right now and I know this transitory is P.S. was a pretty big producer of acting.
We think fundamentally octane is going to be okay. I mean, it's going to be strong, but the market will be supply and we again, it's more an advantage for us because of the complexity of our system.
Okay. Thanks, very much Tom I appreciate the answers guys I'll turn it over.
Our next question will come from Roger read with Wells Fargo. Please go ahead.
Hey, good morning.
Good morning.
I'd have to say compared to some of the mens Ms pronunciations it occur that's a pretty minor.
I was going to say good morning, Red hat USA [laughter]. Thanks.
I mean, I think everybody knows who's coming in this year with the accelerated capex maintenance et cetera.
Tom.
But in the back half of the year, we have the hopefully Martinez acquisition coming through against a better operating backdrop can you give us maybe a little more granularity on what we should be expecting in terms of.
You know any risk on capex being higher or lower in the second half and maybe the pace of working capital recovery that she would anticipate.
Yes, I think ultimately it lets go kind of in reverse order, we'll start with the working capital side of things. So to date, we've probably had a use of just shy of $300 million of working capital now a portion of that is related to inventory, but also a portion of it just relates to a handful of other categories on the balance sheet. We do believe we're going to start to see that swing back the other way.
Obviously, we just reported our second quarter numbers. So you see kind of a snapshot of the balance sheet. That's included in the tear sheets. Ultimately we have already started to see a portion of that come back as we sit here through the end of July now and so from our perspective and this is similar to what we've seen in prior years, where weve been more front end loaded from a capex perspective that ultimately the capex relates to downtime associated with the refineries were building intermediates were storing those intermediates and then ultimately running them off kind of as the refining units come back online. So we should really start to see the first part of working capital swing back during the third quarter. Then there will be some follow on effects to that that should be positive towards the back end of the year that being said all of this is subject to where hydrocarbon prices are so if we see a massive spike in hydrocarbon prices. It does blunt some of that working capital coming back.
Then with respect to working I'm, sorry, with respect to Capex.
We're through 100% of our major maintenance activity and so the vast bulk of the Capex left to be spent through the remainder of the year really relates to the completion of the Coker project and essentially doing all of the tie ins associated with the hydrogen project at Delaware City. So theres a hodgepodge of other much smaller activities that are going on at each of our five refineries, but from our perspective, we're still very confident with that guidance. We know there's a $50 million band included in there I think as we sit here today, we're probably going to wind up somewhere close to the middle of that band, but I do think we want to give ourselves a little bit of cushion in the event that something unforeseen happens along the way if we buy chance decide that it makes sense to spend a little bit of 2020 capex to basically prefunded some stuff during 2019.
So from from the perspective of Martinez at the latter half of the year I think where we sit here today is we've obviously, we did the Torrance Valley pipeline drop we talked a lot back in June in conjunction with the transaction announcement that we will be accessing the debt markets at the appropriate time.
So we have a zero balance outstanding balance on that particular security and ultimately we'll use that to fund the working capital associated with Martinez, we do expect to generate significant free cash flow, partially driven by increased cracks really across the board.
Runway.
Clearly this is all subject to the whims of the market that we really cannot control, but as we sit here today looking at the forward curves things look reasonable for us to generate the type of cash flow that we think we are capable of producing.
Okay. Thanks, and then just to go one more step down on the California side Best results, we've seen from Torrance.
Since you've owned it obviously market Wilson pretty favorable position.
To start the quarter.
I was just wondering if you are looking at it from the outside we think its great.
As well as it should have four there things that you know it could have been better or just kind of fewer rating it was it.
That's a great question Roger.
Right to the point.
You know I'd say probably.
Given the circumstances I give them an eight.
Give us an eight give them an eight and what I mean by that is this is why you buy California refineries through certain extent is it's as you well know into the supply chain is very tight because of the island dies nature in the products and there are some times, where you go short on production be questioned prop problems or or plant shutdowns and what you want to do would be in a position that you actually have your equipment run.
Reliably and they did so that ties did very well and ran reliably but.
They have moved so far so fast.
Out there since we took the acquisition maybe acquisition I'm very proud of the organization.
Let's say eight to 10 or seven and a half to tend to go we are not there yet that place has more potential.
And I think well actually as we said look who will prove ourselves out later were benefit Martinez, but a very good second quarter and a great margin environment, but we're not all the way there yet.
Great. Thank you.
In the second half outlook is is seemingly better than the first half have you noticed any shifts in terms of the market portfolio or kind of the demand environment that you're seeing across the board of your system.
Whether its throughout Twoq were even recently here in Threeq you.
I'd say, obviously, we go back to one Q and that was a a rocky environment because of the gasoline situation, which gave the internal combustion engine was declared dead on arrival.
During the first quarter, we recovered and we predicted that and markets are efficient and they will continue to be efficient.
A little bit along diesel in the second quarter and to certain extent that was probably impacted it certainly was impact through certain extent by the heavy rains and flooding and decrease in.
Agricultural usage.
We expect to see a reasonably good diesel market, especially as you know with some some additional push from IMO coming as we move along in the second half of the year and our own view is that IMO.
Even we when we first got about IMO, we looked at it in terms of.
Hey, it's going to be a big impact on obviously feedstocks because the ability to clear the barrel if you're oh.
Sure Hi, sulfur fuel is going away.
Unless you can put it into a coke or you put your crude into ground on January onest.
But we also thought it would be you know a big boom Frejus you LSD. It's if we our view is more up as others have is that what will happen is.
May you could make that compliant fuel by.
Taking gas all away from an FCC, if the gas cracks are low and selling the viaggio in today that pool and so we think there is going to just basically being off between all of the clean products and the gas wells that will play out different knobs that I will turn but by and large we see a constructive.
Demand markets have time do you have anything you would add.
I would add to that I mean.
Early year on year, we're seeing increases in distillate inventory, but the inventory is still quite comfortable relative to five years.
And I think adding on at this point as distillate, you know as room and needs to build in front of IMO with the increased demand that will be coming from that side of the barrel inadequate.
Perfect. Thanks for that for you I guess the second question is on the operations out look at Chalmette seems like the throughput guidance is a little bit lower sequentially is that the kind of shifting of the crude slate that you mentioned or anything to note here and in terms of Threeq you outlook for Chalmette.
I've said this before when the economics dictate taking a heavy machine and turn it into a light machine or vice versa. You don't get the same capacity and not be able to make that switch and run. The same you can't run 200000 barrels a day of light Sweet crude one day and turn it to having the economics have gotten compelling that would you know the the incentives differential between LLS and Mars, we should be running all LLS and we are increasing I'll ask Mike.
And other light crudes.
But you know there's going to be a limit on that and some of that is resulting in lower throughput as you hit limitations in the town. The second piece is Erica matter, both said that an industrial we've advanced all of our major.
Maintenance efforts turnaround efforts.
Into the first half we do have one project that we consciously left open that were going to execute in chalmette.
In September .
And that we're going to go into a unit called the caffeine hydrotreater.
And we're going to put some modifications inside not to get technical but we don't make enough or you want to stay in the Chalmette, we make lower valued desolate.
This project is going to make some modifications that will allow us to increase the production of you what I see from the plant five to 10000 barrels a day, but that is impacting some of the throughput rate in.
In the third quarter.
Perfect. Thanks, so much.
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Our next question will come from Phil Gresh with JP Morgan.
Please go ahead.
Phil Your line is open.
Oh.
Our next question will come from Neil Mehta with Goldman Sachs. Please go ahead.
Good morning, Tim I guess, the first question is on Western Canada, There's a there's a big.
The range of potential outcomes, when we talk to investors.
Large consumers of Canadian crude.
More Neal it's Tom I mean, certainly as we're looking of the.
The WCS market developments.
It's certainly been a little bit stronger in the first half of the year than our expectations in the third quarter is.
Still shaping up on the narrowing of the range.
Basically the curtailments had success and then many lights in terms of narrowing differentials that hasn't had as much success in terms of absolute decreasing inventories but.
I would say that looking out, particularly in the near term is that I do think as mentioned on an earlier question that of the first quarter represented I think the trough of our crude by rail business for that we're taking.
And then in the second quarter. It ticked back up I think in the third quarter at this point, we're looking to optimize that position and move off the base lower from where we were today I think longer term I do think IMO does start to factor into play.
But we do have a we have and like we will have strong pad to margins for the considerable for at least the near future. So that should certainly had some support to Canadian differentials, whether it's on the lights or whether it's on the on the on the heavies in India and in the short to medium term and then longer term see those moving back out.
Okay. That's helpful and the second is just from a reliability standpoint, there have been some.
Headlines around the Toledo, Ohio refinery and in some operational issues earlier. This week anything you can you can comment there in terms of that asset and is any of the issues there at baked into into your Q3 guidance.
Hey, Matt.
First off there was there was an incident.
There was no impact in community, none of our employees or contractors were injured.
But the net result for investors is there is no change to our throughput guidance for the quarter.
And we don't see it as a material that.
Our next question will come from Paul Cheng.
Howard Weil. Please go ahead.
Hey, guys good morning.
Hi, good basketball.
Thank you.
Question on the I think you talked a little bit on the IMO compounds feel from PPS, then <expletive> or what is your intention to do you are you going to Brian primary to beat Yogi into the U.S., Oh or that you're trying to use directly from the high sulfur fuel and also what is your ability to take high sulfur fuel oil as a feed into your corpus.
Great question No we spent about.
An hour and a half yesterday and we've been working as some this is on the latter part of your question.
Oh, we have significant ability to buy high sulfur fuel oil if it obviously had an economic price.
And bring it into.
Actually all of our coking refineries have the capability of doing that now.
Some of them can only do it through the crude tower. So you would bring in a some type of a cut.
You wouldn't buy by 3.5%, but if you try to buy a carton visit that's got some livestock in it and because of that you bring it in for the crude tower and then basically you visited would go to the Coca from the crew count.
In one of our refineries, we think we can get it directly to the coker, but it is a significant volume that we can buy and that's some of the flexibility that we've been pushing one of the reasons we bought the.
Logistics asset that we bought an east coast, which is an extra paulsboro and sits between Paulsboro and Delaware City is to augment that flexibility to move high sulfur fuel all around in fact reuse that during a recent Delaware City Coker turnaround on the first part of your question.
I mean, when we ultimately see when a systemic wheelabrator and the light heavy spreads.
Why now to reflect the fact that there is no market high sulfur fuel that will be buying crude light heavy crude.
And we'll just make our our gas oil or gas off or the compliant fuel on the back end of that but.
As I said, well, maybe you earn on a call originally.
A big piece of history is going to be supplied by 15 part to me you are less day.
We believe and others believe and we can see it.
And then move it and sell it as a 0.5 fuel I'll point out again I've mentioned it before the.
The California system is ideally suited for this because of the fact that you have to make carb gasoline in car diesel the point I would make is the tires refinery with its complexity Fogey refinery has a 100000 barrel a day high pressure piece of equipment that sits in front of the cat cracker.
That reduces the sulfur in the feed to the FCC and tolerance to below 0.1 sulfur.
So you could literally blend higher fuel into that material.
Shut the valve or at least decreased about the cat cracker.
Make more fuel and then the markets will look wheelabrator.
So what I'm, saying is I think there's going to be a number of knobs that turn.
And we'll be supplying the fuel in different ways.
It's Tom I think you have all the information can you quantify how much is the we said you can buy into your system.
I asked the question yesterday, and it certainly probably north of 50000 barrels a day.
And the just Q is that I mean, when the I'm sure that you be a weird that some of your competitors, particularly on the Exxon and shell have patent then how did in terms of how to bring into the IMO components.
How challenging dead when Youre lawyer, we view that thing the industry may have had some difficulty to oh.
Those pending in order to to get the compounds field.
Well with that Youre lawyer, basically, saying that that's another issue with that.
<unk> as a percent of Oh, we haven't actually seen any information too we know that the page there are certain things totalys doing certain things.
And of course acts on certain things at this point, we have no reason to believe that we're going to be constrained by that but we have not seen the details of it.
Okay all right.
Hang on Hall, I'm talking about I would the way our system is designed at this point as it relates to the IMO fuels.
We are not setting ourselves up to be a dramatic wholesale or selling end users directly we will be selling components to the market and selling the agenda. So those issues will be on somebody else.
Oh I see so you actually not going to start with a finished product says Oh that's correct.
We may have it from time to time, but we don't have a big business model to be competing with the global bunker players.
And it's that market liquid enough for you to just be a major.
ER, who sold off components.
Yes, yes.
Okay all right. Thank you.
[noise] [noise].
Our next question will come from Matthew Blair with Tudor Pickering and Holt. Please go ahead.
Hey, good morning, everyone I'm not sure if youve already covered this but could you provide your WCS crude by rail volumes to the east coast in Q2, and a any sort of outlook for Q3.
Oh, Yeah, and Tom in the second quarter, we did 75000 barrels a day and in the third quarter I would anticipate that number moving down into the ER.
55 to 60000 barrels a day right.
Thank you and then I was hoping you could provide a little bit of commentary on the west coast product market overseen PADD five gasoline diesel and jet inventories all that new five year highs it looks like gasoline to start off the quarter a little soft could you just talk about the dynamics you're seeing.
<unk> are you seeing more imports come in is this just a result of refineries running harder coming off of Q1, and I guess, a little bit of Q2 turnarounds any commentary there.
Yeah, I think it's a it's a it's a movie team in California or.
Obviously.
During parts of the early part of the second quarter ended the first quarter and it was a significant number of planned and unplanned downtimes.
And PADD five in California to margins of course responded and that's why one of the reasons. We had good fund has such a good financial quarter and time, but the <unk> wireless supply chain takes a lot longer than to rebalance and in California because of.
Khabab and as et cetera, It does rebound and so they are mater ship started showing up and it was a correct.
And it took a it's only now from the folks out in the West Coast, telling me that as you look out the windows from the offices that you start to see the ships, leaving the various ports, particularly port of Los Angeles. So the imports had a surge in imports to try to capture that on was the primary reason.
That they the the market moved down it's recovered it actually got down but a couple of the about $1 a barrel lower than it is right now and it's starting to recover. So we think we're going to California will be fine going forward.
Well, we definitely we've seen high octane components, which were destined for the West coast are now being deviated at the other markets like New York Harbor, where you have a higher people more bombs Bruce.
Sounds good thanks.
[noise].
Our next question will come from Patrick slammed with Simmons Energy. Please go ahead.
Hi, guys. Thanks for taking my question I wanted to ask if you could give us an update on your latest thoughts around the political issues in Michigan and the talk about the closure of line five that's been drawn down I know you guys are kind of close to the issue there.
We are we're monitoring it we're working hard rock I think its.
It's a political suicide for certain politicians in the state of Michigan, you have a tremendous amount of.
Propane to heat homes that come through that pipe Ah theres, nothing unsafe or environmentally responsible with the pipe.
And obviously it serves a lot of refineries.
Toledo, a would be impacted.
We are runs would go down as a result.
Not not to defend different from the rest of the market you would your gasoline production and your jet fuel production you know all year clean products production would decline precipitously.
And it would be a major event for.
The people of Michigan and would end up paying significantly more for products I do think there okay.
Would immediately be a response from the federal government and quite frankly, I think it would be.
A major boost to president trumps.
The campaign effort in 2020 in the upper Midwest.
So it's something that you know the politicians are playing with words clearly monitoring it.
But then the at the end of the day.
You know.
My guess is either.
The Michigan politicians will not commit Harry Carey or if they do.
I would expect the white house.
And the Trump administration to step in.
Okay, Great Thats very helpful.
My second question is basically as Permian production continues to ramp up we're seeing an increased prevalence of light barrels that are in the market.
Especially around this new lighter grade of WT I'll do you guys have any capacity to run that and also just capacity to run lighter crudes in general across the system.
Yeah, we can obviously run lighter crudes, but the light or do they get more difficulties to process.
Oh, you running W.T.I., who were running a brand or Brent based crude not front itself, although we actually.
I ran a little bit of Brent this month.
Easier.
A west African suite is easier than running.
These Permian crudes. These very light crudes these kind of say crudes for us. So we can run them, but again there is no free lunch in his business. If you units designed to run it started and our ratio of crew range of gravity between X and Y. If you deviate from that you're probably going to have to.
Cut back you throughput.
I would also like to thank you.
West Texas.
And our next for what it already to know that we're sitting there at that point, that's more of a western pad three feet off of them.
By the time product.
Yes, we're looking for a generic.
So overall as opposed to a need Permian just due to basically Jones Act restrictions.
Okay, Great that's very helpful. Thanks.
And our last question will come from Jason Gammel men with Cowen.
Please go ahead.
Hi, Thanks for taking my question I know you mentioned the ability to run high silver feel or directly through your system and I'm wondering do you guys see a risk that a transmission mechanism from high sulfur fuel oil translating to though.
Discounted heavy crude prices could be broken or kind of not fully translate the way that you would normally expect it to.
Yeah, I think I'd.
The thing that we think might happen is initially.
There will be a lag.
Of course, what happens is January 1st one is why there is no market.
Into the international market fuel market for high school for high self originated.
Oh, that's Elmer <unk> driving over to cliff they've got to have a plan right now that plan is probably going to be.
If you.
Alan compete against call, where you try to get a refiner wise the capability.
To buy this material and can bringing it to their refinery.
The reason I say that is gonna there could be a lag is simply because of this the various non free market [laughter] pod for this continued to try to take advantage of the the situation that exists with cut constraining heavy crude you medium crudes and being withheld from Canada and sanctions on Iran. In Venezuela.
It actually works to their benefit right now because they're getting a increased prices on some of the other crude.
So, there's there's probably going to be a lag and long term I don't there's not going to be in my mind.
Anything that really disconnects that formula economy, one, yes, I mean I think.
Sort of expand just a slight movements.
Let me answer the product markets for more of your definitely way ahead of the crude market as it relates to the IMO Prime It was in the development of this 2.5 market.
Hi, Sulphur fuel oil from a credit perspective, which is very very very steep backwardation and then you have things like light crude which are you know basically trading flat on a differential to where the current spot markets are so basically what I'm trying to say is that.
Crude markets are definitely very or very much torn between the white narrow heavy duty narrow might have on the market that we are in today and are definitely undervaluing. The crude slate changes that are pending on the horizon as we basically go into an IMO world. So as it stands today, yes high sulfur fuel is definitely cheaper.
At some point in the fourth quarter.
In college wanting than high sulfur crudes in the industry would be wanting to get into buying back.
Potentially at the expense of running crude.
At this point are we to be of high sulfur fuel is going to remain very very discounted youre going to ultimately.
You're gonna D. Ray refineries, and you're going to be running last because you're going to be.
Keeping your coker fall with somebody else's material as opposed to somebody's crude.
Thanks, and I appreciate those comments if I could just ask a follow up on another comment you made earlier just about the fact that sounds like there's a lot of.
Gasoline supply out there was supplying the west coast or earlier in Twoq, you know back filling on the on the East coast.
What do you think's driving the higher amount of global supply of gasoline that's out there and do you see that persisting.
Through the rest of the year. Thanks.
Actually I think Tom was referring to the fact that they'd be about p., Bob the spread in New York Harbor is <unk> octane is tightened has given incentive to redirect some cargoes that we still headed towards the west coast.
When the West coast cracks were coming down to come back to the East coast.
Uh-huh.
You know.
Obviously.
Worldwide gasoline balances.
They're not bad or do you as balanced they certainly are not bad.
And as we look at it.
Gasoline will come under a little bit of pressure as it does seasonally you when you get the RVP change and some of the Butanes go back into gasoline.
But I think gasoline is going to get some support as is every light product from IMO wise it comes in.
I mean, we're not seeing any material weakness in gasoline anywhere right now I mean, we've got you know.
Runs across the U.S., just any sort of historic numbers as we've been looking at you know throughout the summer at this point and we have a chance for runs.
Yeah.
It's a water park part of August , but you know gasoline market, you know <unk> looks decent cost.
Thanks, a lot.
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And there are no further questions at this time, so I'll turn it back to Tom Nimbley for closing remarks.
Well. Thank you very much everyone for joining us today, we look forward to talking to you again, hopefully with very good results of the next call.
This does conclude todays program. Thank you for your participation you may now disconnect.
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