Cyprus Mail
Business Energy

Oil refiners worldwide struggle with weak demand, inventory glut

1024px Anacortes Refinery 31911

Global oil refiners reeling from months of lackluster demand and an abundance of inventories are cutting fuel production into the autumn because the recovery in demand from the impact of coronavirus has stalled, according to executives, refinery workers and industry analysts.

Refiners cut output by as much as 35 per cent in spring as coronavirus lockdowns destroyed the need for travel. As lockdowns eased, refiners increased output slowly through late August. But in top fuel consumer the United States and elsewhere, refiners have been decreasing rates for the last several weeks in response to increased inventories, a sustained lack of demand and in response to natural disasters.

The hit to capacity has been most notable in China. The second largest fuel consumer led the world in oil demand recovery after taming its outbreak of coronavirus. But its refiners also export fuel, and those shipments have been weak due to the virus’s effect on fuel demand in other Asian nations.

Chinese refineries are expected to cut runs in September, led by PetroChina 601857.SS with a 5-10 per cent reduction versus August, as Chinese refiners grapple with high fuel inventories and poor export margins, analysts said.

“The impacts of COVID-19…are putting extreme pressures on the refining business that we have not experienced before and are not sustainable over the longer term,” Scott Wyatt, chief executive at Australian fuel supplier Viva Energy Group Ltd VEA.AX, said earlier this month.

Inventories of distillates, which include diesel, jet fuel and heating oil, which usually start building ahead of winter, are brimming this year, leading to a poor outlook for refinery margins for the coming months.

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

Asian refiners have had to deal with higher official selling prices from Saudi Arabia and other Middle Eastern producers than in the late spring, said KY Lin, spokesperson for Taiwanese refiner Formosa Petrochemical, causing major refining centers to cut processing.

Japan, the world’s third-largest crude importer, cut its refinery utilization rate to 65.9 per cent in the week through Sept. 12, down from nearly 72 per cent in mid-August.

South Korea’s largest refiner SK Innovation Co Ltd 096770.KS is considering further lowering crude processing at its two refineries after reducing average utilization rates to 80 per cent in September-October from 85 per cent in July-August, according to a company spokeswoman.

“We’re back to the times when margins are poor,” Lin said, adding that economics have actually deteriorated from the second quarter. “Even though margins were poor back then, crude feedstock costs were very low…now there’s really no margin.”

 



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