Oil refiners worldwide struggle with weak demand, production cut



Global oil refiners reeling from months of lackluster demand and an abundance of inventories are cutting fuel production into the autumn because the recovery in demand from the impact of coronavirus has stalled, according to executives, refinery workers and industry analysts.

Refiners cut output by as much as 35 per cent  in spring as coronavirus lockdowns destroyed the need for travel. As lockdowns eased, refiners increased output slowly through late August. But in top fuel consumer the United States and elsewhere, refiners have been decreasing rates for the last several weeks in response to increased inventories, a sustained lack of demand and in response to natural disasters.

The hit to capacity has been most notable in China. The second largest fuel consumer led the world in oil demand recovery after taming its outbreak of coronavirus. But its refiners also export fuel, and those shipments have been weak due to the virus’s effect on fuel demand in other Asian nations.

Chinese refineries are expected to cut runs in September, led by PetroChina with a five to 10 per cent reduction versus August, as Chinese refiners grapple with high fuel inventories and poor export margins, analysts said.

“The impacts of COVID-19…are putting extreme pressures on the refining business that we have not experienced before and are not sustainable over the longer term,” Scott Wyatt, chief executive at Australian fuel supplier Viva Energy Group Ltd , said earlier this month.

Inventories of distillates, which include diesel, jet fuel and heating oil, which usually start building ahead of winter, are brimming this year, leading to a poor outlook for refinery margins for the coming months.

U.S. fuel demand has fallen 13 per cent year-on-year, according to the U.S. Energy Information Administration. Autumn is typically when use of heating oil and diesel rises, but with more than 179 million barrels in storage, nearly a record, refiners have no incentive to keep units running.

The Paris-based International Energy Agency cut its forecast for global oil demand for 2020 for the second time in two months last week due to the faltering recovery. The energy watchdog forecast global consumption of petroleum and liquid fuels will average 91.7 million barrels per day for all of 2020, a reduction in its previous forecast of 200,000 bpd and down 8.4 million bpd from 2019’s 100.1 million bpd level.

U.S. refiners are still producing 20 per cent less fuel than before the pandemic. Chinese, Indian, Japanese and South Korean refineries cut their utilization rates from July and August.

“Even with a U-shape economic recovery, demand potentially is going to be around 2 million bpd below where it was in the fourth quarter of 2019,” David Fyfe, chief economist at Argus, said on a webinar earlier this month.

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