Downstream uncertainty has never been so large: IEA

The IEA today said the global refining system and fuel trade is hurtling into one of the most uncertain periods in history, ahead of G7 sanctions on Russian oil that are being imposed without any clarity on how to secure alternative supply.

"As 2022 draws to a close, 2023 is likely to start off with even lower product inventories and a very thin safety cushion," the IEA said in its latest monthly Oil Market Report (OMR). "The range of uncertainty has never been so large."

Refining has been severely disrupted in recent weeks. Strikes in France contributed to a decline of 1.1mn b/d in throughputs in the Atlantic basin in October, by the IEA's estimate. That was tempered globally by higher throughputs in Asia-Pacific.

A combination of low inventory and refinery disruption pushed middle distillate margins higher around the world in October. The IEA said diesel cracks against crude on the US Gulf coast were almost equal to the crude price itself, an extremely rare occurrence. In Europe, the diesel crack to crude was equivalent to more than 75pc of the crude price.

Europe received 1.4mn b/d of Russian crude in October, by the IEA's count, of which 1.1mn b/d will need to be replaced using alternative sources from 5 December. Poland's PKN Orlen has said it is considering continuing taking pipeline crude deliveries from Russia's Tatneft, but not Rosneft.

Policymakers have held talks with refiners about restarting units mothballed during the pandemic in the US, but with limited effect on the market so far. PBF Energy has restarted conversion units at the 100,000 b/d Paulsboro refinery in New Jersey.

China's ministry of commerce has said 2023 crude import quotas will be capped at 4.8mn b/d, unchanged from 2022. That may suggest policymakers do not intend to let refiners ramp up rates to take advantage of global product shortages.

The IEA expects Russian refinery runs to be cut significantly when EU sanctions on products imports come into force in February. Russian runs have averaged around 5.4mn b/d over the past four months and the IEA expects an 800,000 b/d drop next year.

Russia is still playing a critical role in the global oil system and its crude and products exports increased month-on-month in October. China, India and Turkey have all significantly increased their imports of Russian oil so far this year. Assuming they do not increase their imports further after the EU excludes Russian oil, the remainder of the world would have to triple its imports of Russian oil for Moscow to sustain export volumes.

"We do not think this is feasible," the IEA said today.

By Benedict George