Oil refineries’ booming profits set to slow this year

An oil refinery is seen in Carson, California March 4, 2015. REUTERS/Lucy Nicholson

Oil refiners are set to enjoy another year of robust profits as feedstock prices remain low, but new plants and slower global growth mean 2016 will not be a boom year.

The 70 percent drop in crude oil prices since mid-2014 sparked a worldwide boom in demand last year, as drivers in the United States, China and India bought more cars and took more road trips.

Refineries operated at full throttle throughout 2015 and booked the strongest profits in years as demand surged 1.8 million barrels per day (bpd), or more than 2 percent from the previous year.

This year, the International Energy Agency has said it expects demand growth of 1.2 million bpd, down from last year’s unusually high rate, as the global economy slows and new car purchases decline.

“This year, we see less favorable margins than in 2015,” Philippe Sauquet, head of refining at Total SA, said on the sidelines of the CERAWeek conference in Houston, Texas.

State-of-the-art refineries set to start operating in the Middle East and Asia will increase the supply of refined products such as jet fuel, diesel and gasoline by around 1.3 million bpd to 82.4 million bpd.

“We expect this year refining capacity surplus to go up. But if demand is as strong as 1.2-1.5 million bpd, refining margins will continue to be supported, (but) not as much as 2015,” Tufan Erginbilgic, head of refining at British oil and gas company BP, said.

Horace Hobbs, chief economist for Phillips 66, the fourth-largest U.S. refiner, said in an interview that the company does not expect 2016 margins to match 2015 levels.

“But we do expect some real solid demand growth this year, primarily in gasoline,” he said, citing cheap pump prices and growth in sales of sport-utility vehicles and pickup trucks.

He said the ability to export refined products drives refining margins more than low crude prices. When output exceeds domestic demand, refiners can still run full tilt because they can export to international markets that need their excess.

Phillips’ U.S. Gulf Coast plants are focused on accessing those markets, including Latin America, Africa and Europe.

“I think margins will be good, maybe not great,” Hobbs said. “We should have reasonably good growth in the U.S. and in our primary export markets.”

Demand is expected to surge after April when the summer driving season begins.

In recent weeks, U.S. refiners including Exxon Mobil Corp, Valero Energy Corp, PBF Energy INC, Philadelphia Energy Solutions and Monroe Energy, a unit of Delta Airlines Inc, curbed output as stocks piled up during winter and hurt profits.

Refining and trading have rescued the world’s top oil companies such as BP, Total, Exxon Mobil Corp. and Royal Dutch Shell during the current downcycle, somewhat offsetting huge drops in revenue from oil production.

Source: Reuters



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