Crumbling refinery profits threaten Opec-led crude rally

Profit squeeze: Emissions rise from an oil refinery at sunset in Texas City, Texas. Refining margins are looking very shaky, according to a European trader. The crude price also has a major impact on the operating costs of refiners, which consume more than 5 of the feedstock to power their plants. — Bloomberg

LONDON: The recent Opec-led rally in crude prices is hitting refinery profits hard, flashing warning signs over oil’s bull run.

A wave of refinery maintenance scheduled in spring could also put downward pressure on crude, analysts said.

Higher oil prices typically quench consumption and squeeze profit margins at refiners that convert the feedstock into gasoline, diesel and aviation fuels.

Benchmark profit margins in key refining hubs dropped sharply in recent weeks – by over 50% in the US Gulf Coast and northwest Europe, Reuters data shows – increasing expectations that some refiners will reduce operating rates.

“Margins have suffered and the biggest factor behind the weak margins we’ve seen is the run-up in crude prices,” said Jonathan Leitch, research director with consultancy Wood Mackenzie.

Crude prices have gained more than 50% since June, as production cuts by Opec and a number of non-Opec oil producers increasingly bite into global inventories.

But while crude stocks tumbled at increasingly higher rates throughout 2017, refineries around the world continued to run at record levels to meet demand and lock in strong margins.

The lag between the gain in crude prices and the decline in refining margins led in turn to a rise in stocks of products.

In the fourth quarter of 2017, refinery runs hit a record 81.5 million barrels per day (bpd), International Energy Agency data shows, tipping fuel supply into excess and sending cargoes into storage tanks after a year of drawdowns.

According to analysts FGE, fuel stocks in Europe, Singapore and the United States built by some 27.5 million barrels in the first two weeks of 2018.

Stocks are expected to grow further in coming weeks, a trend exacerbated by the rising oil price, which Wood Mackenzie says leads shippers to save fuel by reducing vessel speed and prompts power plants to use cheaper energy sources instead of fuel oil. — Reuters

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3

Business , Oil , crude , refining , profits , Opec , rally , price ,


Next In Business News

NWP shareholders calls for EGM to replace directors
WZ Satu bags RM243mil job from Malaysian Refining Co
Khazanah raises RM312mil from TM share placement
FBM KLCI ends higher despite negative broad-market breadth
Tricor apologises for Maybank AGM rescheduling
CIMB Group underlying business proves resilient in FY20 despite pandemic effects
Pertama Digital increases court bail limit to RM500k via eJamin
UMW vehicle sales up 35% in 1Q21
UOB Malaysia reiterates commitment to support country's transition to cleaner energy
Maybank to reschedule 61st AGM

Stories You'll Enjoy