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Special | Unfinished business: Refining margins after COVID-19
In this podcast our refining specialists Raul Alcamo (Head of Refining) and Rob Campbell (Head of Oil Products) discuss how the refining sector will manage the upcoming challenges posed by a recovery in main product demand amid expected tight crude supply, what this will mean for margins and trade flows, and implications for runs and potential refinery closures.
Refining margins are recovering more slowly than the main product demand recovery would suggest, with many factors continuing to weigh on the refining sector.
European refineries will continue to struggle, weighed down by the excess of capacity, by refinery configurations that do not allow them to maximise the strength of gasoline to the same extent as US refineries, and by constant export of middle distillates products from the east of Suez.
We see the east of Suez region dictating the agenda for the refining sector in the period to 2025. Asia has been adding an average of 0.87 mb/d of refining capacity each year since 2017. It will add 0.78 mb/d in 2021 and a total of 1.40 mb/d through 2024 (just considering firm projects).
To keep this capacity at 80% of utilisation, we expect an incremental crude flow towards Asia of around 2 mb/d (compared to the last three years), but this could easily jump to 4 mb/d should Asia decide to run at 85% capacity.
US margins are clearly outpacing those from the rest of the world. We anticipate that the US refining sector is the one best placed to handle the challenges set to materialise in the coming two years. This is mainly due to the US being a net exporter of crude, which allows US refineries to access crude at the FOB price, while the rest of the world has to add freight costs to US crude—even though freight rates remain relatively low.
Refining margins are recovering more slowly than the main product demand recovery would suggest, with many factors continuing to weigh on the refining sector.
European refineries will continue to struggle, weighed down by the excess of capacity, by refinery configurations that do not allow them to maximise the strength of gasoline to the same extent as US refineries, and by constant export of middle distillates products from the east of Suez.
We see the east of Suez region dictating the agenda for the refining sector in the period to 2025. Asia has been adding an average of 0.87 mb/d of refining capacity each year since 2017. It will add 0.78 mb/d in 2021 and a total of 1.40 mb/d through 2024 (just considering firm projects).
To keep this capacity at 80% of utilisation, we expect an incremental crude flow towards Asia of around 2 mb/d (compared to the last three years), but this could easily jump to 4 mb/d should Asia decide to run at 85% capacity.
US margins are clearly outpacing those from the rest of the world. We anticipate that the US refining sector is the one best placed to handle the challenges set to materialise in the coming two years. This is mainly due to the US being a net exporter of crude, which allows US refineries to access crude at the FOB price, while the rest of the world has to add freight costs to US crude—even though freight rates remain relatively low.
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By Energy AspectsIn this podcast our refining specialists Raul Alcamo (Head of Refining) and Rob Campbell (Head of Oil Products) discuss how the refining sector will manage the upcoming challenges posed by a recovery in main product demand amid expected tight crude supply, what this will mean for margins and trade flows, and implications for runs and potential refinery closures.
Refining margins are recovering more slowly than the main product demand recovery would suggest, with many factors continuing to weigh on the refining sector.
European refineries will continue to struggle, weighed down by the excess of capacity, by refinery configurations that do not allow them to maximise the strength of gasoline to the same extent as US refineries, and by constant export of middle distillates products from the east of Suez.
We see the east of Suez region dictating the agenda for the refining sector in the period to 2025. Asia has been adding an average of 0.87 mb/d of refining capacity each year since 2017. It will add 0.78 mb/d in 2021 and a total of 1.40 mb/d through 2024 (just considering firm projects).
To keep this capacity at 80% of utilisation, we expect an incremental crude flow towards Asia of around 2 mb/d (compared to the last three years), but this could easily jump to 4 mb/d should Asia decide to run at 85% capacity.
US margins are clearly outpacing those from the rest of the world. We anticipate that the US refining sector is the one best placed to handle the challenges set to materialise in the coming two years. This is mainly due to the US being a net exporter of crude, which allows US refineries to access crude at the FOB price, while the rest of the world has to add freight costs to US crude—even though freight rates remain relatively low.
Refining margins are recovering more slowly than the main product demand recovery would suggest, with many factors continuing to weigh on the refining sector.
European refineries will continue to struggle, weighed down by the excess of capacity, by refinery configurations that do not allow them to maximise the strength of gasoline to the same extent as US refineries, and by constant export of middle distillates products from the east of Suez.
We see the east of Suez region dictating the agenda for the refining sector in the period to 2025. Asia has been adding an average of 0.87 mb/d of refining capacity each year since 2017. It will add 0.78 mb/d in 2021 and a total of 1.40 mb/d through 2024 (just considering firm projects).
To keep this capacity at 80% of utilisation, we expect an incremental crude flow towards Asia of around 2 mb/d (compared to the last three years), but this could easily jump to 4 mb/d should Asia decide to run at 85% capacity.
US margins are clearly outpacing those from the rest of the world. We anticipate that the US refining sector is the one best placed to handle the challenges set to materialise in the coming two years. This is mainly due to the US being a net exporter of crude, which allows US refineries to access crude at the FOB price, while the rest of the world has to add freight costs to US crude—even though freight rates remain relatively low.