European oil refineries’ margins collapse as input costs soar

{"text":[[{"start":9.06,"text":"The profitability of Europe’s oil refineries has fallen sharply, raising the prospect of output cuts just as the continent faces soaring prices for refined products."}],[{"start":19.64,"text":"A surge in physical crude prices and record costs for hiring a supertanker have pushed up input costs for the continent’s refineries, while prices for some of the products they produce such as gasoline and naphtha have not risen sufficiently to offset this."}],[{"start":35.32,"text":"As a result, refinery margins in north-west Europe tumbled from $54 a barrel at the beginning of September to as low as minus $11 a barrel on October 5. Margins are currently $3 a barrel, according to LSEG data."}],[{"start":50.88,"text":"“Crippling crude acquisition and freight costs have crushed European and Asian margins in recent weeks,” said the International Energy Agency in a report on Wednesday."}],[{"start":61.26,"text":"The sharp decline in margins — known in the industry as “crack spreads” — comes amid a tightening in global diesel markets. US President Donald Trump announced a deal on Friday with Russia to release diesel supplies on to global markets, although analysts say this will have little impact."}],[{"start":77.12,"text":"Some European refineries could soon start to look at whether they should reduce their operations, analysts said."}],[{"start":83.12,"text":"“Any further deterioration in refinery profitability could prompt economic run cuts at marginal refineries in Asia and Europe, increasing market tightness before the end of the year,” said the IEA in its report."}],[{"start":null,"text":"

"}],[{"start":97.32,"text":"Refineries convert crude oil into a range of products, from bottled gas and petrol to fuel oil and bitumen. While diesel and jet fuel prices have soared this year, refiners only have a limited amount of flexibility in how much of one product they can supply from a barrel of oil, however profitable that product may be."}],[{"start":125.04,"text":"Crack spreads for naphtha and high-sulphur fuel oil — lower-margin products where demand has not kept pace with that for crude — have sunk deeper into negative territory, meaning refineries could still eventually cut output, analysts said. Gasoline crack spreads turned negative at the end of last month."}],[{"start":133.16,"text":"“Margins are very, very thin now and [refineries are] unsure what they will do in the next few weeks,” said Benedict George, head of products pricing at Argus, adding that while refineries have not yet trimmed operations, they may opt to if margins stay slim."}],[{"start":148.28,"text":"“If the crack stays negative for a week [refineries] will probably not change their strategy, but if it stayed negative for three weeks or more maybe their behaviour will change,” he added."}],[{"start":159.6,"text":"Concerns over oil supplies out of the Gulf, including a pause in flows through Saudi Arabia’s East-West pipeline, convinced refiners to pay big premiums to benchmark prices last month for their future deliveries."}],[{"start":171.72,"text":"However, in the meantime, both benchmark physical crude prices and shipping costs have surged. Dated Brent, the physical benchmark for oil delivered in about 10-to-30 days’ time, has risen more than 13 per cent over the past month, much more than front-month futures contracts that have gained just 1.2 per cent over the same period."}],[{"start":193.16,"text":"The combination of higher benchmark prices and hefty premiums has resulted in record-high crude costs at the refinery gate."}],[{"start":201.16,"text":"The challenges facing refineries in Europe and Asia stand in sharp contrast to conditions for their US peers, which can use domestic crude and therefore have not been hit by a surge in shipping costs during the war caused by tanker shortages. As a result, they are set to enjoy a more than fourfold increase in profits."}],[{"start":219.88,"text":"But incentives to process more crude in the US will not offset disincentives in other regions, according to the IEA’s analysis. Global refinery operations are set to hit a seasonal low of 81.3mn barrels a day this month."}],[{"start":null,"text":""}],[{"start":234.32,"text":"To make matters worse for consuming nations in Europe and Asia, the market for oil products has become more fragmented, as high shipping rates mean products cannot move cheaply from places where prices are low to destinations where prices are high."}],[{"start":247.64,"text":"“We’re seeing a lot of ‘dis-allocation’ in oil markets where cheap fuels are not going to where the demand is because of the costs,” said Arne Rasmussen, chief analyst at Global Risk Management."}],[{"start":258.76,"text":"“Gasoil is cheaper in Asia than it is in Europe so ordinarily someone would try to bring it across, but tanker rates are so high,” said Rasmussen. “It implies that there’s too much sand in the machine.”"}],[{"start":276.8,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1791980392_6922.mp3"}