Demand for Refined Oil Products to Lag Supply
07/12/2012| 06:36am US/Eastern
--Crude oil refining capacity set to increase by more than 1 million barrels in 2012
--This significant addition in capacity could pressure refining margins, IEA says
--IEA predicts refineries will produce 75.8 million barrels a day in the third quarter
--U.S. refinery runs surprisingly robust and strength could continue, IEA says
LONDON--Europe may be facing further refinery closures in 2013, after losing eight in the last four years, as global growth in oil-refining capacity will outpace demand for oil products, the International Energy Agency said Thursday.
Refinery capacity will continue to grow in Asia, while the U.S. is sheltered because it enjoys access to cheaper new sources of domestic oil, the IEA said.
"U.S. refiners are clearly outperforming others in Europe and Singapore and other refining centers," said Toril Bosoni, a senior IEA oil market analyst. "As long as the U.S. domestically produces crude cheaper, it does give U.S. refineries an advantage over other areas."
The U.S. success story comes at a cost to the industry in other regions. As demand for fuel in the U.S. is contracting overall, it is exporting more product to Latin America and Europe, leaving refineries in these regions with less market share.
In the U.S., Delta Air Lines Inc.'s (>> Delta Air Lines, Inc.) plans to restart fuel production from the idled ConocoPhillips (>> ConocoPhillips) Trainer refinery, and Carlyle Group (>> Carlyle Group LP) has agreed to take over operations of Sunoco Inc.'s (>> Sunoco, Inc.) 330,000 barrel-a-day Philadelphia refinery. This will provide further relief to the U.S. East Coast downstream industry.
The IEA said it expects global refinery runs in the third quarter to rise to 75.8 million barrels a day, 0.5 million barrels a day higher than the year-earlier quarter as key oil-consuming countries restock products. Aside from robust runs from U.S. refineries, a boost in refinery runs in the Middle East and Russia have contributed to the rise.
Meanwhile, more than one million barrels a day of new refining capacity is likely to come online this year, and a further 1.3 million barrels a day in 2013, compared with just 400,000 barrels a day in 2011. The significant addition to capacity--much of which is in Asia--will grossly outpace demand growth for oil products, which the IEA estimates will average 800,000 barrels a day this year and 1 million barrels a day in 2013.
The increase in capacity could mean more refinery closures globally, but particularly in Europe where eight refiners have shut since the start of the economic crisis in 2008. The Continent's sovereign-debt problems have cut into demand for fuel such as gasoline and diesel.
"It is clear the pressures are on mature markets," said Ms. Bosoni. "Pressure will be on profitability and we could see more closures than what have been announced so far."
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