Oil refiners in Asia, Europe and the United States are facing a drop in profitability to multi-year lows following the springing up of new refineries across the world, Reuters has reported.
This followed the springing up of new refineries, especially the 650,000 bpd Dangote Refinery and petrochemical plant which recently commenced production.
Apart from Dangote’s, other plants which recently commenced operation are Mexico’s 340,000 bpd Dos Bocas, Kuwait’s 615,000 bpd Al Zour and Oman’s 230,000 bpd Duqm.
According to Reuters, refiners such as TotalEnergies and trading firms such as Glencore saw bumper profits in 2022 and 2023, cashing in on supply shortages caused by Russia’s invasion of Ukraine, disruptions to Red Sea navigation by Houthi militants, and a big recovery in demand following the COVID-19 pandemic.
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But the refiners are said to be experiencing a downturn following the take-off of new refineries.
Daily Trust reports that the Dangote plant has recently rolled out premium motor spirit (pms) popularly known as petroleum, months after commencement of distribution of diesel and jet fuel.
The weakness is a further sign of soft consumer and industrial demand, especially in China, because of a slowing economic growth and rising penetration of electric vehicles. New refineries coming on stream in Africa, the Middle East and Asia have added to the downward pressure.
“It’s certainly looking like the refining supercycle that we’ve experienced over the past few years may now be coming to an end, with supply from newly inaugurated refineries finally catching up with slower-growing fuel demand,” Commodity Context analyst Rory Johnston said as quoted by Reuters a few days ago.
It would be recalled that Grangemouth, Scotland’s only oil refinery, is to close in 2025 with the loss of 400 jobs.
Reports further stated that demand has also slowed down in the US.
Gulf Coast gasoline margins, excluding renewable fuel blending obligations, averaged $4.65 a barrel as of Sept. 13, down from $15.78 a year ago and diesel margins were just over $11, versus over $40 last year, according to data from Oil Price Information Service.
The International Energy Agency projects diesel and gasoil demand this year to average 28.3 million barrels per day (bpd), contracting by 0.9% from 2023, while demand for gasoline, jet fuel, LPG and fuel oil grows over the same period.
At the end of August, European diesel margins fell to about $13 a barrel, their lowest since December 2021, according to LSEG data. They averaged $16.6 a barrel in August, less than half the $38.3 they averaged in August 2023.
“Globally, there is clearly too much refining capacity currently relative to demand levels, with new capacity just making things worse,” said Vortexa’s chief economist David Wech as quoted by Reuters.
Bank of America analysts on Sept. 13 said they expected global refining margins to continue their slump, after sliding 25% quarter-to-date and 50% on a spot basis, and as new refining capacity rises 1.5 million bpd year-on-year.
Speaking with our correspondent, CEO of 11PLC, Otunba Tunji Oyebanji, stated that refineries are under pressure over excess capacity.
He said, “Refining is a global industry. It is currently under pressure from excess capacity. Many IOCs are shutting down refineries because of poor profitability. So, it’s going to be tough. There will be a lot of competition. Refined products flow in different directions.”
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