MOSCOW (MRC) - Global oil refiners reeling from months of lackluster demand and an abundance of inventories are cutting fuel production into the autumn because the recovery in demand from the impact of coronavirus has stalled, according to executives, refinery workers, and industry analysts, Reuters.
Refiners cut output by as much as 35% in spring as coronavirus lockdowns destroyed the need for travel. As lockdowns eased, refiners increased output slowly through late August. But in top fuel consumers the United States and elsewhere, refiners have been decreasing rates for the last several weeks in response to increased inventories, a sustained lack of demand, and in response to natural disasters.
The hit to capacity has been most notable in China. The second-largest fuel consumer led the world in oil demand recovery after taming its outbreak of coronavirus. But its refiners also export fuel, and those shipments have been weak due to the virus's effect on fuel demand in other Asian nations. Chinese refineries are expected to cut runs in September, led by PetroChina with a 5-10% reduction versus August, as Chinese refiners grapple with high fuel inventories and poor export margins, analysts said.
"The impacts of COVID-19...are putting extreme pressures on the refining business that we have not experienced before and are not sustainable over the longer term," Scott Wyatt, chief executive at Australian fuel supplier Viva Energy Group Ltd, said earlier this month.
Inventories of distillates, which include diesel, jet fuel, and heating oil, which usually start building ahead of winter, are brimming this year, leading to a poor outlook for refinery margins for the coming months. U.S. fuel demand has fallen 13% year-on-year, according to the U.S. Energy Information Administration. Autumn is typically when use of heating oil and diesel rises, but with more than 179 million barrels in storage, nearly a record, refiners have no incentive to keep units running.
The Paris-based International Energy Agency cut its forecast for global oil demand for 2020 for the second time in two months last week due to the faltering recovery. The energy watchdog forecast global consumption of petroleum and liquid fuels will average 91.7 million barrels per day for all of 2020, a reduction in its previous forecast of 200,000 bpd and down 8.4 million bpd from 2019's 100.1 million bpd level.
"From our perspective, we see that pre-COVID demand will probably not be back until 2023," said Molly Morris, senior vice president in crude, products, and liquids at Equinor. U.S. refiners are still producing 20% less fuel than before the pandemic, operating at 76% of overall capacity, lowest for this time of year since 2008. Chinese, Indian, Japanese, and South Korean refineries cut their utilization rates from July and August.
"Even with a U-shape economic recovery, demand potentially is going to be around 2 million bpd below where it was in the fourth quarter of 2019," David Fyfe, chief economist at Argus, said on a webinar earlier this month. Asia’s fuel output could fall further during seasonal maintenance between September and November, and several facilities worldwide are expected to close.
Average utilization rates at Chinese state-owned refineries were at around 78.6% by end-August, down around 3.6 percentage points from July, data compiled by China-based Longzhong consultancy showed.
According to MRC's ScanPlast report, Russia's overall PE production totalled 1,712,400 tonnes in the first seven months of 2020, up by 58% year on year. Linear low density polyethylene (LLDPE) accounted for the greatest increase in the output. At the same time, overall PP production in Russia increased in January-July 2020 by 24% year on year to 1,063,700 tonne. ZapSibNeftekhim accounted for the main increase in the output.