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MOSCOW (MRC) -- Falling prices for
crude oil are usually a good thing for global refiners - except when nobody is
driving, reported Hydrocarbonprocesing.
Gasoline
demand in the United States, the world’s largest oil consumer, is plunging.
International flights are being grounded worldwide, slamming jet fuel
demand.
Margins for producing transportation fuels turned negative in
Europe and Asia, and briefly did the same in the United States, in a rapid
response to international and domestic travel restrictions in scores of nations
worldwide.
"What we are seeing is nothing short of unprecedented," said
Tom Kloza, founder of the Oil Price Information Service, adding that demand
destruction during this pandemic has exceeded what was seen in the wake of Sept.
11 and other disasters.
Crude oil prices have plunged this year, most
recently after Saudi Arabia and Russia failed to reach agreement on limiting
supplies. Both US crude and international benchmark Brent have tumbled below
USD30 a barrel.
This would have been a boon for refining margins - but
prices on gasoline and jet fuel have plummeted even faster this week, sapping
refiners’ profitability.
Traders, all speaking on condition of anonymity,
said it was extremely difficult for refiners to plan run rates due to daily
changes in the situation. On Tuesday, Phillips 66 said it was cutting production
at its Los Angeles refinery due to loss of demand.
Refineries must choose
between extending maintenance while margins are so poor or ramping up to take
advantage of cheap crude to fill up storage with refined products. However, once
storage has been filled, refining rates would have to fall sharply, due to lack
of demand.
In Europe, refiners are losing nearly USD7 on every barrel of
gasoline they produce, an 11-year low. Differentials for jet fuel cargoes also
fell to a record low.
Asian refiners are producing gasoline at a loss of
78 cents a barrel of Brent crude, lowest in 13 months.
US gasoline
refining margins fell a whopping 95% on Monday to settle at 28 cents per barrel,
lowest since December 2008. On Tuesday, they rebounded, but were still at a
meager USD2 per barrel.
Asian refining margins for jet fuel plunged to
USD4.71 per barrel over Dubai crude, lowest ever based on Refinitiv data going
back to March 2009. They were at USD7.70 on Friday. In the United States, jet
fuel prices when compared with the heating oil benchmark were at lows not seen
since 2011 in both New York and on the Gulf Coast.
"When crude prices
fell heavily early last week, it gave an incentive to refineries to keep runs
unchanged. Eventually, with the virus-related situation developing, it’s now the
second time for global refineries to think of run cuts," a Seoul-based middle
distillates trader said.
Numerous refiners have invested in costly
large-scale projects to capitalize on projected increases in demand for
low-sulfur shipping fuel in the first half of 2020 due to new maritime
regulations limiting the use of high-sulfur fuels.
Now, though, those
refiners may be particularly hard hit, as the virus has curtailed cruises and
global shipments of goods.
"Refiners that invested in sophisticated
upgrading equipment to produce low-sulfur fuel oil for ships may suffer another
blow," said Phil Verleger, a veteran oil economist and independent consultant,
in a note.
For example, PBF Energy’s market capitalization fell to less
than USD1.3 billion on Friday, just USD300,000 more than it paid for Shell’s
Martinez refinery earlier this year.
Following that purchase, PBF laid
off members of its commercial business development team, according to a person
familiar with the matter. The team had been looking strategic projects,
acquisitions and other new business opportunities for the company.
PBF
did not respond to a request for comment.
Italian energy group Eni said
on Tuesday all its refineries in Italy were working normally
except for two that had cut volumes for maintenance.
A spokesman for
Repsol said the Spanish refiner had activated a global plan two weeks ago to
ensure normal operation at all its facilities.
As MRC informed earlier,
operations at Italian petrochemical producer Versalis (part of Eni) have not
affected by emergency quarantine measures in the country. Italian Prime Minister
Giuseppe Conte extended its emergency coronavirus measures Wednesday evening and
announced the closure of "non-essential" commercial businesses. This follows the
announcement of a nationwide lockdown on Monday, limiting movement for around 60
million people. Under these measures people will only be allowed to leave their
homes for work or health reasons. Versalis has three steam crackers in Italy,
capable of producing 1.675 million mt of ethylene, 750,000 of propylene and
285,000 mt of butadiene a year.
Ethylene and propylene are feedstocks for
producing polyethylene (PE) and polyprolypele (PP).
According to MRC's ScanPlast report,
Russia's estimated PE consumption totalled 215,390 tonnes in the first month of
2020, up by 23% year on year. Shipments of all grades of high density
polyethylene (HDPE) and linear low density polyethylene (LLDPE) increased due to
higher capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments
to the Russian market were 127,240 tonnes in January 2020, up by 33% year on
year. ZapSibNeftekhim's homopolymer PP accounted for the main increase in
shipments. |
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