2020 Off to Rocky Start for Refiners
Though less than a month in, the new year has been difficult for oil refiners.
Such is the conclusion of energy consultancy Wood Mackenzie.
In a written statement emailed Tuesday to Rigzone, the firm reported that volatility in the refining sector stems from the convergence of various factors. It stated that drivers include geopolitical risk, slowing U.S. tight oil production and the impact of complying with .
Alan Gelder, vice president of refining and chemicals for Wood Mackenzie, pointed out the challenging start to 2020 continues a period of weakness that began during the final few months of last year. Many refiners in Europe and Asia realized margins that were below historical five-year lows, he said.
77彩票注册官网“U.S. refiners were in a better place,” continued Gelder. “But this was not how it was meant to be, as the expectation was that margins would rise as 2020 approached.”
Weak oil product demand growth, particularly during the second quarter, set a low bar for 2019 margin performance, Wood Mackenzie stated. However, the firm added the shipping sector’s transition to the IMO 2020 regulatory regime marked the “real disappointment” for the refining sector last year. It noted that high-sulfur fuel oil prices rapidly collapsed in October and November as ship owners began switching to low-sulfur bunker fuel to comply with IMO 2020.
77彩票注册官网“The fuels being purchased were low-sulfur fuel oil components from stocks built up during 2019, so while high-sulfur fuel oil prices collapsed, there was no corresponding rise in the price of marine gas oil and other clean products, as there was no change in demand for them,” Gelder explained.
Moreover, Gelder observed that concerns about the U.S.-China trade war and a weak economic growth outlook contributed to depressed distillate prices.
77彩票注册官网“The collapse of fuel oil prices with no corresponding change in the price of clean products had a strong effect on crude differentials, as the heavy/sour crudes were significantly less valuable to refiners,” he said.
Wood Mackenzie added the market environment has been particularly painful for refiners with less sophisticated configurations. It noted the extra difficulty for simpler refinery owners stems from widening crude differentials lagging behind the change in product values.
Also, the consultancy stated that OPEC made the situation more vexing for refiners. It pointed out the cartel’s commitment to further restrain oil supplies to balance the global crude market supported the price for medium/sour crudes, which OPEC producers typically supply. The firm added that Asian refining margins were particularly weak as a result.
77彩票注册官网According to Gelder, the U.S. will command a major role in 2020 to support stronger global economic growth and higher oil demand.
77彩票注册官网“U.S. tight oil supply growth was a key feature of 2019, with growth of over 1 million barrels per day,” Gelder said. “However, that growth will not continue into 2020 as rig counts decline and low capital budgets take their toll on the U.S. E&P sector.”
Gelder added that natural gas liquids (NGLs) represent the key sector for 2020 U.S. supply growth amid an expected increase in U.S. liquefied petroleum gas (LPG) exports.
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