European product overhang 'mostly absorbed': IEA

The IEA today said it estimates that the build-up in Europe of refined product supply during the early phase of Covid-19 pandemic will have been mostly absorbed by the end this year, adding support to prices at a time of rising demand and high refining costs.

In its latest Oil Market Report (OMR), the Paris-based energy watchdog estimates that total European oil product stocks at the end of September were 95mn bl below that of a year earlier at around 518mn bl, below the five-year average of around 566mn bl and well below the 690mn bl in May 2020. The fall in European inventories is part of a downward global trend, resulting from refinery run cuts and a recovery in consumer demand.

The particularly heavy effect on jet fuel demand throughout the Covid-19 pandemic has prevented a quicker recovery in refining activity, with producers unable to find viable homes for jet fuel inevitably created by the refining of other fuels. But the IEA said today the relaxation of travel bans are likely to bring global jet demand back up to within 20pc of pre-Covid levels by the end of the year.

Falling inventories, high crude prices and multi-year high prices for the natural gas that powers many European refineries have all supported outright refined product prices in Europe in the fourth quarter, and brought gasoline prices to seven-year highs. Data in the OMR suggest that rising global crude production is already bringing prices of the key benchmark grades down into the $80-84/bl range from above $85/bl in October.

By Thomas Warner