Oil refiners’ profits remain under pressure
By Ron Bousso and Libby George
LONDON, Aug 24 (Reuters) – Oil refiners reeling from tumbling profits can expect some reprieve in the coming weeks as lower production will tame a huge global excess of gasoline and diesel.
Dozens of plants that will switch off for regular autumn maintenance will help slow the downward spiral in margins (the profit from refining crude into oil products) that have fallen to barely break even in 2016 from highs of around $11 a barrel a year earlier, analysts said.
Refining profits have been a vital bulwark for the likes of Royal Dutch Shell, BP, Eni and Repsol, helping to offset losses from crude oil production in a more than two-year price rout.
European refinery turnarounds are set to peak at around 1.1 million barrels per day (b/d) in mid-September before gradually tapering off throughout October, according to Reuters data and traders.
Though last minute maintenance announcements could increase the balance, it remains significantly lower than last year, when it peaked at around 2.3 million b/d.
Globally, maintenance is expected to be more significant, particularly in export hubs in the Middle East and Asia, taking off around 5 million b/d of capacity at the peak, roughly 7 percent of global refinery throughput.
“No one is seeing the same sort of margins we saw a year ago, but nor are they falling off a cliff,” said David Fyfe, head of market research at Switzerland-based trader Gunvor, which owns three refineries in northern Europe.
Unplanned outages in the U.S. Gulf Coast, a major export hub, including at ExxonMobil’s 502,500 b/d Baton Rouge refinery, are further helping reduce the glut.
A cold winter would further eat into stocks of heating oil.
All this will likely help deplete brimming gasoline and diesel stocks, a result of excessive production earlier this year when prices of crude oil feedstock were low and demand expectations were high.
“We’re approaching a state of equilibrium in the sense that demand is matching quite closely with what refineries can produce,” said Jonathan Leitch, oil product markets research director at Wood Mackenzie.
The overhang in developed economies of middle distillates, which include diesel and heating oil, is at around 72 million barrels or around four days of consumption, according to Fyfe.
Gasoline faces an overhang of 30 million barrels, roughly two days of forward cover.
Markets will need a long time to go through the excess supplies, analysts said, as U.S. inventories of crude and refined products rose to a fresh all-time high this week.
Robert Campbell, head of oil products markets at consultancy Energy Aspects said refining margins, or cracks, are unlikely to surge even though European diesel stocks are expected to decline by 4 to 6 million barrels in September.
“All of this sounds very bullish, but a good deal of this story may already be priced in. European diesel cracks have rallied from their lows in recent weeks, but cannot realistically go much higher,” according to Campbell.
“Margins don’t look great going into September but maintenance, even if it is small, will keep people afloat for a while.”
Chances for a new tidal wave of refined oil products once autumn maintenance is completed are diminishing as 2016 and 2017 will see far less new refinery capacity come on line compared to last year, Fyfe said.
(Editing by William Hardy)