The merger between Canadian oil producers Cenovus Energy and Husky Energy will result in a major refining force in the US Midwest. Cenovus’ $2.9-billion acquisition of Husky will give the company an additional 350,000 refining capacity. Refineries in the US Midwest can process up to 4 million bpd of crude, the nation’s second-largest behind the US Gulf Coast.
However, the merger came amid a pandemic-driven fuel demand collapse. The outlook for future fuel consumption growth is also weak. US fuel consumption is expected to decrease to 18.2 million bpd this year before rebounding to just under 20 million bpd next year, remaining lower than last year’s levels. Gasoline refining margins have also been weak since the start of the pandemic. The cracks currently stand at $7.53/barrel, well below the five-year average of $13.17/barrel for this time of the year.
Husky’s Toledo and Lima refineries in Ohio are capable of processing Cenovus’ heavy Canadian crude. Husky’s North American refining capacity stands at 660,000 bpd, which is more than enough to absorb Cenovus’ Alberta heavy oil output. However, the supply of such a grade still outweighs demand in the US Midwest.
