Record Asia-Pacific refinery run rates have shifted global product balances in recent months, depressing margins and raising the prospect of lower throughput in the remainder of the year, the IEA said today.
In its latest monthly Oil Market Report (OMR), the IEA revised its estimate for global refinery runs in the second quarter to 82.3mn b/d, from 81.4mn b/d in the previous report. First-quarter runs are now put at 81.6mn b/d, up from 81.1mn b/d. In both cases the revisions mainly reflect a higher estimate for Asia-Pacific.
The IEA cut its forecast for runs in the third and fourth quarters, mainly reflecting lower expectations for Europe and the Americas.
The agency also said the availability of discounted Russian crude in the Middle East and Asia-Pacific means refining activity in those regions are likely to be disproportionately higher than in the Atlantic basin.
The IEA's indicator margins are weakening for every type of refinery in northwest Europe, the US Gulf Coast and Singapore, reflecting middle distillates specifically. The IEA attributes declining margins more to high refining runs in Asia-Pacific in the first quarter than to low demand, although it said "softer manufacturing PMI readings in Europe, the US and China all point to tepid industrial activity".
Traders tell Argus that diesel demand has been significantly slower in some parts of Europe since December 2022.
If margins were to drop further, European refiners might be compelled to cut runs before their counterparts east of Suez.
"European refineries barred from processing Russian crude and feedstocks are competitively disadvantaged by the EU sanctions programmes, leaving their crude demand vulnerable if additional margin pressure emerges in the near term," the IEA said.
European margins underperformed in April because they tend to have higher middle distillate yields, relatively high naphtha yields and less conversion capacity. Simple refineries in Europe only recorded an indicator margin of $2.15/bl in April, down by two thirds on the month. The IEA suggests refineries of this type are not far from price levels that could prompt run cuts — although a lift in margins in early May has made that less likely.
Lower middle distillate margins have been partly, but by no means completely, offset by rising gasoline margins. The switch to summer-specification gasoline has lifted margins because it brings higher production costs. This has coincided with a severe tightening of US gasoline stock levels.
The IEA only expects crude runs of 12.1mn b/d in Europe in May, revised down from 12.4mn b/d previously forecast. It has revised April runs up to 11.7mn b/d, from 11.6mn b/d, so still sees the conclusion of maintenance work as lifting regional activity, but by a smaller degree.
It still forecasts European runs at 11.9mn b/d in the current quarter, and it revised lower its first-quarter figure to 11.7mn b/d from 11.8mn b/d. European runs for the whole of 2023 have been revised down to 11.9mn b/d from 12mn b/d, a slight decline from 12mn b/d in 2022.
