(Reuters) – Refineries around the world are struggling to meet global demand for diesel and gasoline, exacerbating high prices and exacerbating the shortage of large consumers such as the United States and Brazil in smaller countries such as Ukraine and Sri Lanka. devastated by war.
Global fuel demand has recovered to pre-pandemic levels, but the combination of pandemic closures, sanctions on Russia and export quotas to China are having the ability of refineries to meet demand. China and Russia are two of the three largest refining countries, after the United States. All three are below maximum processing levels, undermining the efforts of world governments to lower prices by releasing crude from reserves.
Two years ago, fuel margins were in landfills due to the pandemic, which caused multiple closures. Now, the situation has reversed and the tension could persist for the next two years, keeping prices high.
“When the coronavirus pandemic occurred, global demand for oil was not expected to fall for a long time, and yet so much refining capacity was permanently reduced,” said Ravi Ramdas, director general of the energy consultant Peninsula Energy.
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Global refining capacity fell by 2030,000 barrels a day in 2021, the first decline in 30 years, according to the International Energy Agency. The number of barrels processed daily fell to 78 million bpd in April, the lowest since May 2021, well below the pre-pandemic average of 82.1 million bpd.
Fuel stocks have fallen for seven consecutive quarters. Thus, while the price of crude oil has risen 51% this year, U.S. heating oil futures have risen 71% and European gasoline refining margins recently hit a record $ 40 a barrel. STRUCTURALLY SHORT
The United States, according to independent analyst Paul Sankey, is “structurally short” in refining capacity for the first time in decades. U.S. capacity has dropped nearly 1 million barrels from before the pandemic to 17.9 million bpd in February, the latest federal data available.
LyondellBasell recently said it would shut down its Houston plant, which could process more than 280,000 bpd, citing high maintenance costs.
US refineries in operation are working hard to meet demand, especially for exports, which have risen to more than 6 million bpd, a record. Currently, capacity utilization exceeds 92%, the highest seasonal since 2017.
“It’s hard to see that the use of the refinery can go up a lot,” said Gary Simmons, Valero’s commercial director. “We’ve been in this 93% usage; in general, it can’t be maintained for long periods of time.”
The U.S. ban on Russian imports has left northeastern U.S. refineries with no raw materials needed to make fuel. Phillips 66 has been running its 150,000 bpd catalytic cracker at its New Jersey refinery at reduced rates because it cannot get low-sulfur vacuum diesel, according to two sources familiar with the matter. RUSSIA CAPACITY IS INACTIVED, CHINA RESTRICTS EXPORTS
Russia has idled about 30 percent of its refining capacity due to sanctions, according to Reuters estimates. Currently, the outages are about 1.5 million bpd and probably 1.3 million bpd will remain offline until the end of 2022, JP Morgan analysts said.
China, the world’s second-largest refinery, has added several million barrels of capacity in the last decade, but in recent months has reduced production due to COVID-19 restrictions and limited exports to curb refining activity as part of an effort to reduce carbon emissions. . China’s performance fell to 13.1 million bpd in April, the IEA said, below 14.2 million bpd in 2021.
Other countries also do not increase supply. Eneos Holdings, Japan’s largest refinery, has no plans to reopen its recently closed refineries, a spokesman told Reuters.
Some new projects around the world have been affected by delays. A 650,000 bpd refinery in Lagos was due to open by the end of 2022, but has now been delayed until the end of 2023. A direct source said the refinery has not yet hired a company to do the work. start-up that will take several months.
There have been some reboots. France’s largest TotalEnergies began the process of restarting the 231,000 bpd Donges refinery in April after closing in December 2020, while a 300,000 bpd complex in Malaysia was restarted earlier this month.
Diesel users have been compressed, especially in agriculture. Ukrainian farmers are short, as the supply of Russia and Belarus has been cut due to the war.
Sri Lanka, which is in the midst of a fuel crisis, closed its only refinery in 2021 because it did not have enough foreign exchange reserves to buy imported crude. He is looking to reopen this facility because fuels are even more expensive.
Brazilian state-owned Petrobras told the government that importers may be unable to get U.S. diesel for tractors and other agricultural equipment to harvest crops at one of the world’s largest agricultural producers.
“If U.S. refineries are damaged during the hurricane season, or anything else contributes to market stagnation, we could have real problems,” said a Brazilian refining executive.
(Report by Laura Sanicola; additional report by Florence Tan in Singapore, Ron Bousso in London, Yuka Obayashi in Tokyo, Sabrina Valle in Houston, Julia Payne in Lagos, and Uditha Jayasinghe in Colombo, Sri Lanka; edited by David Gregorio)
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