Crude Summit: Repsol sees potential shale demand cap

US shale oil demand may be limited by global refiners' ability to absorb extra light crude supply, a Repsol official said today.

"If you analyze the refining system of the world, they are designed to take a certain percentage of light crude that cannot be changed dramatically," Pedro Antonio Merino Garcia, chief economist at Spanish integrated company Repsol said at the Argus Americas Crude Summit in Houston, Texas.

Merino's comments come as US shale output continues to increase steadily amid a ramp up in drilling last year. Crude output from the top shale basins is expected to rise by 62,000 b/d to about 8.2mn b/d in February, the Energy Information Administration (EIA) said in its latest monthly Drilling Productivity Report.

The pressure on refineries are particularly high to increase their diesel, or distillates, yield as part of the planned implementation of low-sulphur marine fuel requirements by the International Maritime Organization (IMO) in 2020. That will force them to use more medium grades as opposed to light crude which produces more gasoline.

The global refining system may run up against a limit in its ability to use light crude, including shale oil, Merino said.

US refinery intake of light crude has stabilized around 40pc, with the rest being filled by heavier grades. Refiners' ability to change that processing ratio remains limited because any major alterations will require large investments, he said.

Most refiners remain reluctant to make multi-billion dollar investments to upgrade their facilities unless they are convinced about the shale industry's ability to sustain their output growth volumes over the longer term especially as policies governing shale oil extraction could change.