Global Oil Refiners Increase Production As Margins Return To Pre-COVID Levels


  • Gasoline and diesel margins rebound globally as COVID-19 restrictions relax
  • World stocks of petroleum products at their lowest since 2014 – FGE
  • Maintenance, high natural gas prices to restrict supply to Q4
  • Asian crude expected to reach 29.5 million bpd in fourth quarter, up 1.4% year-on-year – FGE
  • Formosa to process 400,000 bpd in November, up 5-8% from October

SINGAPORE, Oct. 20 (Reuters) – Oil refiners are ramping up production to meet a synchronized rise in demand in Asia, Europe and the United States, but plant maintenance and high natural gas prices will limit the offers in the fourth quarter, according to company officials and analysts mentioned.

It comes as profits from the production of ground transportation fuels such as diesel and gasoline rebounded globally for the first time since the start of the pandemic, as countries gradually lift restrictions on movement. of COVID-19.

A coal and natural gas crisis in Europe and Asia, which has forced some power producers to burn kerosene, diesel or fuel oil and stock up before the peak in heating demand in winter, also supports world oil prices.

Global prices for crude and major refined products rose more than 60% in 2021 to reach multi-year highs.

“Refining margins have finally found ground,” said Sri Paravaikkarasu, Asia director of petroleum at energy consultancy FGE, as she forecasted a “sharp increase” in crude deliveries this winter.

The increase will be “led by India, followed by South Korea, while Taiwan and Japan will also increase circulation as refiners try to take advantage of the current high margins,” she added.

Global crude oil and fuel prices are pushing consumption recovery

Crude flows in Asia are expected to reach 29.5 million barrels per day (bpd) in the fourth quarter, up from 29.1 million bpd a year ago and 30.3 million bpd from October to December in 2019, Paravaikkarasu said.

Formosa Petrochemical Corp (6505.TW), one of Asia’s leading fuel exporters, announced plans to process 400,000 bpd in November, up from 370,000 to 380,000 bpd in October.

This is expected to reach 460,000 bpd, or 79% of Formosa’s capacity, in December and January 2022, spokesman KY Lin said.

“The increase in production will not happen as quickly as we have maintenance in one unit in October,” he noted.

In South Korea, a major refiner plans to increase production by around 5% in the fourth quarter from the third quarter, a source familiar with the matter said, declining to name the company.

An executive from India’s Hindustan Petroleum Corp Ltd (HPCL.NS) said the company’s group refineries were operating at full capacity.

REFINING MARGINS

The Singapore complex’s refining margins, an indicator of the profitability of refiners in Asia’s main oil-consuming region, hit their highest level since September 2019 above $ 8 a barrel this month.

Margins had turned negative last year, hitting an all-time high in May as the pandemic eroded demand.

In northwestern Europe, refining margins topped $ 9 last week, the highest since April 2020, while U.S. Gulf Coast refining margins are currently around $ 14, or almost three times more than the same period a year ago, according to data from Refinitiv Eikon.

Global Refining Margins Rise With Rebounding Demand For Fuel

The rise in margins comes against a backdrop of steadily declining inventories in key markets.

Combined inventories of petroleum products from the United States, northwestern Europe, Fujairah, Singapore and Japan hit their lowest level since 2014 as of Oct. 14, according to FGE.

Hurricane Ida disrupted the operations of the world’s largest refiner, the United States, for the past two months, while China’s second-largest refiner cut exports as part of reforms.

Consulting firm Energy Aspects cut its forecast for crude production in China from 400,000 bpd to 15.18 million bpd for the fourth quarter, as new refiner Shenghong Petrochemical delayed its start-up and a lack of Product export quotas capped the output of state refiners.

“It is increasingly likely that the government will not allocate additional product export quotas, which adds a downside risk to Chinese sales for the remainder of the year,” the analyst said. Energy Aspects, Liu Yuntao.

Even so, China’s crude throughput is still up from 14.63 million bpd in the third quarter.

The International Energy Agency forecasts global crude throughput at 79.6 million bpd in the fourth quarter, compared to 77.9 million bpd in the third quarter, led by the United States and Asia.

NATURAL GAS PRICE

However, like refinery maintenance, high natural gas prices are also expected to slow the ramping up of cycles, executives said.

In Europe, record natural gas prices are forcing refiners to adjust their operations to limit their exposure to expensive inputs, such as hydrogen which requires natural gas as a feedstock and is used by refiners to remove sulfur from products. oil tankers.

“We are affected by today’s high energy prices like any other consumer of natural gas and electricity,” said a spokesperson for refiner Varo Energy.

“To ensure that we can continue to supply our customers, we have adjusted our operations to minimize our consumption of natural gas while preserving our ability to supply products. “

In the United States, crude flows are expected to drop for a second consecutive month in October to 15 million bpd, as the industry begins fall maintenance, Energy Aspects said in a note.

“However, with refinery margins up nearly $ 9 year-on-year and product inventories at the bottom of their normal range, refinery cycles could surprise on the upside in October,” he added.

Reporting by Florence Tan, Roslan Khasawneh, Chen Aizhu and Jessica Jaganathan in Singapore, Heekyong Yang and Joyce Lee in Seoul, Chayut Setboonsarng in Bangkok, Ahmad Ghaddar, Julia Payne and Ron Bousso in London, Gary McWilliams in Houston; Editing by Gavin Maguire and Himani Sarkar

Our Standards: The Thomson Reuters Trust Principles.

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