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European refiners prospects rise on lower stocks, low availability elsewhere

Brussels (Platts)--21 Sep 2017 956 am EDT/1356 GMT


Decreasing stocks, especially of distillates, and low refining availability elsewhere in the world have improved prospects for European refiners, delegates told a refining conference in Brussels Thursday.

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"We don't start the autumn with high inventory levels," said Matti Lehmus, executive vice president of oil products at Neste.

And Joe Ashman, Greenergy's head of trading strategy. said: "We are no longer carrying big stocks of distillates," While the build-up of product stocks resulted in "a downwards adjustment of margins" in 2016, this year there has been a rising trend, said Richard de Caux, Head of refining analysis at BP.

Margins have been boosted by low crude prices and "this bodes well for European refiners in the next few years," said de Caux. Furthermore, lower refining availability in Latin America and Africa, as national oil companies have put in less investment due to lower oil prices, "had also resulted in higher utilization elsewhere," de Caux added.

While he estimated average global utilization at 83% this year, it has risen to 85% outside Latin America and Africa, levels close to "the golden age of refining," between 2004 and 2008. "Europe especially has gained from this," said de Caux.

Lower crude prices and improving crude quality have also supported simple refining margins as the narrow light-heavy differential "means strong fuel oil crack", said de Caux.

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Hence "low complex refineries are faring far better than they were prior to this big shift in the crude market," de Caux said. As a result "there is a lack of closure announcements," he added.

"I don't think we'll see too many closures," agreed Saras' general manager Dario Scaffardi. Margins have been favorable for both simple and complex refiners, said de Caux. "Everyone is doing well," he added.

Meanwhile the big question remains the future of fuel oil in view of the IMO regulations for lower sulfur bunker fuel from 2020. While fuel oil cracks have been particularly strong this year, further out could see a big shift in prices.

But there are other factors that could impact its fortunes, said delegates. While most delegates remained upbeat about the impact of the IMO regulations, Giacomo Romeo from Macquarie Capital suggested that hydroskimming margins could actually get hurt.

He also expects 200,000 b/d of additional coker capacity in the next three years, as "coker economics will look increasingly attractive." Other participants also talked about current coker upgrades.

But the distillate market is expected to draw extra strength from the upcoming sulfur requirement for bunker fuel, which is to offset any increase in the electric car share.

Even if the passenger car segment decreases there will be growth in the aviation sector, commercial traffic and the bunker market, said Lehmus. "A year ago we looked at 2017 and expected gasoline growth -- the positive side has been the distillate side," he added.

Delegates have been doubtful about the progress of electrification on heavy trucks or aviation. "Big trucks will never electrify, not with the conventional battery," as Cunyet Kazokuglu, head of oil demand forecasting at FGE, said.

--Elza Turner, elza.turner@spglobal.com
--Edited by Jeremy Lovell, jeremy.lovell@spglobal.com




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