London — The sharp decline in global refining activity has continued in May, the International Energy Agency said in its monthly oil market report on Thursday, as refiners face the double whammy of rising crude prices and falling diesel profits.
The agency now sees global crude refining throughput at 66.2 million barrels-per-day, unchanged from April, and more than 14 million bpd lower from a year ago. Gradual recovery could start appearing in June, it added.
“If crude supply adjusts more quickly to the oversupply than forecast, this will support crude prices and depress refinery margins, resulting in lower refining throughput than anticipated,” the IEA said in its monthly oil market report.
“On the other hand, a quicker demand recovery could boost margins and accelerate a recovery in refining activity,” it added.
Oil demand in April slumped by around 25%, or more than 25 million bpd, IEA figures showed, in reaction to global lockdowns to stem the spread of the new coronavirus.
While the easing of some lockdown restrictions in places like the United States, China and Europe this month is expected to boost demand for oil products, refiners are still facing big headwinds and more are shutting down until margins improve.
Refiners across the globe have been curbing output in recent months in the face of falling demand and filling storage tanks, but until recently they had some incentive to continue running.
As the price war between key producers like Saudi Arabia and Russia hit its peak in April, physical crude grades were trading at historic lows, a boon for refiners, which coupled with healthy diesel margins, allowed many to keep running.
But in recent weeks the physical crude market has bounced back, adding pressure on refiners.
“Crude market strength is exerting more and more pressure on refining economics, with our assessed global weighted average margin having fallen solidly into negative territory for the first time since Q2-2014,” JBC Energy said.
While diesel margins in Europe traded in double digits throughout April, in the past week they have slumped to their lowest since mid-2009 below $5 a barrel.
Refiners in Europe are already feeling the pain.
Spain’s Petronor is the latest to announce economic run cuts, saying it had shut one of its crude units from May 9 at its 220,000 bpd Bilbao oil refinery due to slow demand and storage saturation.
A middle distillate trader said they already see tightening high-sulphur gasoil in the Mediterranean region, and offers of jet fuel were falling. “These are signs of run cuts,” he said.
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