Oil refiners around the world are struggling with low demand and a glut of inventory


MELBOURNE / LONDON / NEW YORK (Reuters) – Global petroleum refiners, reeling from months of lackluster demand and abundant inventories, cut fuel production in the fall as demand picks up following the The impact of the coronavirus has stalled, according to executives, refinery workers and industry analysts.

FILE PHOTO: Pipes are pictured at the Cadereyta refinery of Mexican state oil company Pemex in Cadereyta, on the outskirts of Monterrey, Mexico, January 23, 2019. REUTERS / Daniel Becerril / File Photo

Refiners cut production by 35% in the spring, as coronavirus lockdowns destroyed the need to travel. As the lockdowns eased, refiners slowly increased production until the end of August. But among major fuel consumers in the United States and elsewhere, refiners have been cutting prices for several weeks in response to increased inventories, a sustained lack of demand and natural disasters.

The capacity impairment was most notable in China. The second-largest consumer of fuel has led the world in recovering demand for oil after taming its coronavirus outbreak. But its refiners also export fuel, and those shipments have been low due to the virus’s effect on fuel demand in other Asian countries.

Chinese refineries set to cut cycles in September, led by PetroChina 601857.SS with a 5-10% reduction from August, as Chinese refiners grapple with high fuel inventories and low export margins, analysts said.

“The impacts of COVID-19… are putting extreme pressures on refining operations that we have never experienced before and are not sustainable in the long term,” Scott Wyatt, Managing Director of Australian fuel supplier Viva Energy Group Ltd VEA.AX, said earlier this month.

Distillate inventories, which include diesel, jet fuel and fuel oil, which typically begin to build up before winter, are overflowing this year, resulting in a poor outlook for refinery margins in the months ahead.

US fuel demand fell 13% year over year, according to the US Energy Information Administration. Fall is typically when oil and diesel use rises, but with more than 179 million barrels in stock, almost a record, refiners have no incentive to keep units running.

The Paris-based International Energy Agency cut its forecast for global oil demand for 2020 for the second time in two months last week due to the faltering recovery. The Energy Watchdog predicts that global oil and liquid fuel consumption will average 91.7 million barrels per day for all of 2020, a reduction from its previous forecast of 200,000 bpd and a drop of 8.4 million bpd from 2019 level of 100.1 million bpd.

US refiners are still producing 20% ​​less fuel than before the pandemic. Chinese, Indian, Japanese and South Korean refineries reduced their utilization rates from July and August.

“Even with a U-shaped economic recovery, demand will potentially be around 2 million b / d lower than in the fourth quarter of 2019,” said David Fyfe, chief economist at Argus, during a webinar at the beginning of the month.

Fuel production in Asia could decline further during seasonal maintenance between September and November, and several facilities around the world are expected to close.

Average utilization rates at Chinese state-owned refineries were around 78.6 percent at the end of August, down about 3.6 percentage points from July, according to data compiled by consultancy Longzhong based in China.

Australia’s Viva has said he may be forced to permanently shut down his Geelong refinery in Victoria to cut losses unless coronavirus restrictions are relaxed and demand picks up. The Australian government has offered to spend billions of dollars to keep the country’s four remaining refineries open.

Singapore’s complex refining margins, an indicator for Asia, were negative in the first half of September, after being slightly positive in August after four consecutive months of losses.

In the United States, the refining margin hovers around $ 9 a barrel, near its April lows. Refiners typically don’t make a profit on products unless the spread of crack – the difference between crude and fuel – is over $ 10.

Several refiners in the Philadelphia and Chicago area have postponed work scheduled for this fall to save money, according to sources close to the plants. In total, fewer refineries than usual will close for seasonal maintenance reasons.

“Some refiners are in a tough position because some don’t have the cash to do the maintenance now, but they don’t benefit from continuing to operate,” said John Auers, refining analyst at Turner Mason and Company.

Asian refiners have faced higher official selling prices from Saudi Arabia and other Middle Eastern producers than in late spring, said KY Lin, spokesperson for the Taiwanese refiner. Formosa Petrochemical, which caused the main refining centers to reduce processing.

Japan, the world’s third largest importer of crude, cut its refinery utilization rate to 65.9% during the week through September 12, from nearly 72% in mid-August.

SK Innovation Co Ltd, the largest refiner in South Korea 096770.KS plans to further reduce crude processing at its two refineries after reducing average utilization rates to 80% in September-October from 85% in July-August, according to a spokesperson for the company.

“We are back to a time when margins are poor,” Lin said, adding that the economy had actually deteriorated from the second quarter. “Even though the margins were poor back then, the raw material costs were very low… now there really is no margin.”

Reporting by Laura Sanicola in New York, Sonali Paul in Melbourne and Ahmad Ghaddar in London; Additional reports from Shu Zhang, Chen Aizhu and Florence Tan in Singapore, Muyu Xu in Beijing, Heekyong Yang in Seoul and Aaron Sheldrick in Tokyo; Edited by David Gaffen, Simon Webb and Marguerita Choy


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