Image: Reuters Berita 24 English - Refiners around the world are failing to fulfill global demand for diesel and gasoline, increasing high...
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| Image: Reuters |
Berita 24 English - Refiners around the world are failing to fulfill global demand for diesel and gasoline, increasing high prices and worsening shortages in major users such as the United States and Brazil, as well as smaller countries such as the war-torn Ukraine and Sri Lanka.
World gasoline demand has recovered to pre-pandemic levels, but refiners' ability to meet demand is being strained by a combination of pandemic closures, Russian sanctions, and Chinese export limitations. After the United States, China and Russia are two of the top three refining countries. All three are processing at or below peak levels, undercutting international governments' efforts to lower prices by releasing crude oil from reserves.
Due to the pandemic two years ago, margins for producing fuel were at an all-time low, resulting in many plant closures. The scenario has now flipped, and the strain might last for the next few years, keeping prices high.
"Demand for world oil was not projected to plummet for a long time when the coronavirus epidemic struck, and yet so much refining capacity was permanently shut down," said Ravi Ramdas, managing director of energy consultancy Peninsula Energy.
According to the International Energy Agency, global refining capacity declined by 730,000 barrels per day in 2021, the first drop in 30 years. In April, the quantity of barrels processed per day fell to 78 million bpd, the lowest level since May 2021 and well below the pre-pandemic average of 82.1 million bpd.
Fuel stocks have been falling for seven quarters in a row. While the price of crude oil has increased by 51% this year, U.S. heating oil futures have increased by 71%, and European gasoline refining margins have recently reached a new high of $40 per barrel. SHORT IN STRUCTURE
For the first time in decades, independent expert Paul Sankey claims that the United States is "structurally short" on refining capacity. According to the most recent federal data available, US capacity is down nearly 1 million barrels per day from before the pandemic, to 17.9 million bpd in February.
LyondellBasell recently announced that it would close its Houston plant, which could process more than 280,000 bpd, due to excessive maintenance costs.
Operating refineries in the United States are operating at full capacity to meet demand, particularly for exports, which have reached a new high of more than 6 million barrels per day. Capacity utilization is currently at 92 percent, the highest level for the season since 2017.
"It's difficult to see how refinery utilization can rise significantly," Gary Simmons, Valero's chief commercial officer, said. "We've been at 93 percent utilization for a while; it's not something you can do for a long time."
Refineries in the northeastern United States are running out of feedstocks due to the United States' prohibition on Russian imports. According to two sources familiar with the situation, Phillips 66 has been running its 150,000-bpd catalytic cracker at its New Jersey refinery at lower rates due to a lack of low-sulfur vacuum gasoil. RUSSIA'S CAPACITY IS STILL UNUSED, AND CHINA IS RESTRICTING EXPORTS.
According to Reuters, sanctions have forced Russia to shut down approximately 30% of its refining capacity. According to J.P. Morgan analysts, outages are currently at 1.5 million bpd, with 1.3 million bpd expected to remain out through the end of 2022.
China, the world's second-largest refiner, has increased several million barrels of capacity in the last decade, but has recently reduced production owing to COVID-19 limitations and banned exports in an effort to reduce carbon emissions. According to the IEA, China's throughput fell to 13.1 million bpd in April, down from 14.2 million bpd in 2021.
Other countries aren't increasing supply either. A representative for Eneos Holdings, Japan's largest refiner, told Reuters that the company had no plans to reopen recently closed facilities.
Delays have been experienced by some new projects around the world. The opening of a 650,000-bpd refinery in Lagos was originally scheduled for the end of 2022, but has now been postponed until the end of 2023. According to a source with firsthand information, the refinery has yet to contract a business to perform the commissioning work, which is expected to take several months.
Some restarts have occurred. After closing down in December 2020, TotalEnergies began the process of reopening the 231,000 bpd Donges refinery in April, while a 300,000 bpd complex in Malaysia was reactivated earlier this month.
CRUNCH IN SUPPLY
Diesel consumers, particularly in agriculture, have been pressured. Ukraine's farmers are in short supply because to the war, which has cut off supplies from Russia and Belarus.
Sri Lanka, which is experiencing a gasoline shortage, closed its only refinery in 2021 due to a lack of foreign exchange reserves to purchase imported petroleum. It is considering reopening that facility due to the increased cost of fuel.
Importers may be unable to acquire U.S. fuel for tractors and other farm equipment to harvest crops in one of the world's largest agricultural producers, according to Brazil's state-owned Petrobras.
"We could be in serious difficulties if refineries in the United States are damaged during hurricane season, or if anything else contributes to the market's tightness," a Brazilian refining executive warned.
