REFINERY MARGINS MONITORING: European margins end the week lower due to omicron concerns, series reductions are possible

Strong points

European margins soften following tightening of restrictions

Asian margins remain healthy

U.S. margins weaken amid variant fears

European refining margins declined in the week ended December 3, weighed down by concerns about the impact the omicron coronavirus variant could have on oil demand, an S&P Global Platts analysis showed on the 6th. December.

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As the U.S. Center for Disease Control continues to track the omicron, saying it doesn’t know how easily it spreads, S&P Global Platts Analytics expects global demand in Q1 2020 to be weaker.

In Europe, restrictions began to tighten, with Austria reinstating a national lockdown and other countries adding mask and vaccine warrants.

For the week ended December 3, Northwest European refining margins for the Urals increased by 20 cents / bbl week-on-week to an average of $ 5.50 / bbl, while margins of CPC Blend refining in the Mediterranean averaged $ 6.04 / bbl, up from the average of $ 5.88 / bbl for the week ended Nov. 26, according to margin data from Platts Analytics.

However, day-to-day margins for the Urals NWE and the Mediterranean CPC mix were lower as fears of the omicron variant’s rapid spread continued to disrupt markets. NWE Urals fell from $ 6.05 / b on December 2 to $ 5.55 / b on December 3, while CPC Blend went from $ 6.71 / b to $ 6.16 / b during the same period.

While aggregate regional margins remain healthy, European refiners most exposed to gas prices currently have zero or even negative margins, said Rick Joswick, analyst at S&P Global.

“But if they can’t change, they can just cut tracks,” he added. Changing it means refiners burn the LPG produced at the plant instead of buying natural gas and running their reformers harder to consume more naphtha.

And for the fuel switch, there is “limited regulatory capacity / capacity to use oil furnaces,” he said.

Platts Analytics predicts that the fuel switch for users between natural gas and fuel oil is around 500,000 b / d, but this is mostly in power plants and primarily in Asia, with refineries accounting for between 100,000 b / d. d and 150,000 bpd worldwide.

American refiners benefit

According to JP Morgan analyst Phil Gresh, despite rising inventories of clean products and weakening demand, US refiners should benefit from weak European margins.

“The good news for US refiners is that European margins have continued to fade sufficiently due to omicron concerns, which appears to be sparking discussions of production cuts in the range of 10-20% “he wrote in a December 5 report. .

Global NWE gasoline exports for the week ended Dec. 3 averaged 862,000 b / d, down 122,000 b / d from the previous week, according to tracking data from raw materials from Kpler. Of that number, 206,000 b / d were destined for the Atlantic coast of the United States, or 122,000 b / d less than the previous week.

USAC’s gasoline imports from Mediterranean refiners increased 17,000 b / d to 65,000 b / d, according to Kpler data, with two shipments entering New York Port.

USAC’s cracking margins for Bonny Light softened but exceeded those for Europe. For the week ended December 3, they averaged $ 10.34 / bbl, down from $ 11.88 / bbl the week before.

At this point, Asian margins appear immune to the drawdowns as margins remain healthy. The Urals cracking margins in Southeast Asia averaged $ 3.65 / bbl for the week ending December 3, compared to $ 3.03 / bbl the week before.

“Asian refiners have no plans to cut production yet, although that could change if threats from omicron increase,” Gresh added.

Average US Atlantic Coast Refining Margins ($ / bbl)

Source: S&P Global Platts Analytics

US Gulf Coast Refining Margin Averages ($ / bbl)

Source: S&P Global Platts Analytics

Midwestern US Refining Margin Averages ($ / b)

Source: S&P Global Platts Analytics

US West Coast Refining Margin Averages ($ / bbl)

Source: S&P Global Platts Analytics

Singapore Refining Margin Averages ($ / b)

Source: S&P Global Platts Analytics

ARA refining margins averages ($ / b)

Source: S&P Global Platts Analytics

Average refining margins in Italy ($ / b)