Harry Riley-Gould of global energy and commodity price reporting agency Argus Media on Friday (10 July) published a summary highlighting key points in the IEA’s ‘Oil Market Report’ that reflects the post COVID-19 landscape in fuel markets: 

The IEA said today that it will take years for the refining sector to fully recover from the Covid-19 pandemic.

With pandemic-related demand loss heavily concentrated in the transport fuel sector, the market for refined products next year will be smaller than 2015, while global refining capacity will have increased by 4.2mn b/d over the same period, it said in its new Oil Market Report.

This is “arguably one of the biggest challenges refiners have ever faced”.

The IEA expects global utilisation rates to fall to 72% this year, the lowest in 37 years. Rates will rise to 77% in 2021, but this remains below the long-term average of around 80%.

Refineries will need to run at reduced levels in the second half of 2020 after products stocks built at 550mn bl in the first five months of the year. Still, the IEA forecast products markets will end this year with a 675,000 b/d stock build, because yields cannot be fully adjusted to a demand landscape that has been “deeply deformed” by the pandemic. Stocks of some products are likely to continue building even at lower utilisation rates, and any benefit from improving demand is likely to be offset by much tighter feedstock markets ahead, it said.

With yet more capacity scheduled to come online after 2021 and medium-term demand recovery prospects uncertain, utilisation rates will stay low for the foreseeable future unless they are offset by permanent closures, the IEA said. It said that any closures are likely to be concentrated on more complex refineries — bucking a historical trend of less sophisticated refineries shutting because heavy-feedstock discounts and light-products premiums are narrower. This is because of a slowdown in light products demand growth, and an increasing share of lighter crude in the overall supply.

These changes require a fundamental adjustment to refinery yields, it said. Balanced markets require kerosene yields to fall by three percentage points, or by a third, this year with only a small rebound in 2021. Gasoline yields need to increase in 2020 and 2021, and diesel yields must rise this year but fall in 2021. Fuel oil yields must fall overall.

The agency also adjusted its refinery forecasts from the previous report. It now sees global runs falling by 6.4mn b/d to 75.1mn b/d in 2020, and rising by 4.7mn b/d in 2021 — compared with a respective fall of 5.4mn b/d and a rise of 5.3mn b/d in its previous report. The downward revision was concentrated in OECD throughput, which it revised to 34mn b/d this year from 34.8mn b/d in its last report, and to 35.6mn b/d from 36.9mn b/d for 2021. Asia-Pacific demand for transport fuels fell less in the first half and is recovering faster than in Europe or on the American continent, the agency said, and its forecast for Asia-Pacific refining activity in the second half is more optimistic.

A full copy of the IEA’s Oil Market Report July 2020 is available here.

Photo credit and source: Argus Media
Published: 13 July, 2020