MOSCOW (MRC) -- Crude oil refining capacity has shrunk by a record 3.8 MM barrels per day from March 2020 to mid-2022 as demand expanded, setting the stage for fuel markets to remain very tight until at least mid-decade, said Reuters.
The fall in capacity comes as oil demand rose by 5.6 MMbpd over the same period, the report released on Tuesday said. At the same time, about 2 MMbpd of net capacity is expected to come online by the end of 2023, with delays to these timeline likely to arise, the report said.
"This puts pressure on all available refining capacity to run at high utilization levels to keep up with demand." Oil product markets experienced sharp upheaval since the COVID-19 pandemic was declared in March 2020.
While the pandemic decimated demand globally and killed profit margins, the post-pandemic recovery and Western sanctions on Russia over its invasion of Ukraine have tightened fuel markets sharply, leading to record profit margins earlier this year. Record profits for refiners are unlikely to lead to new investment in expanding global refining capacity, however, according to the report, amid "the expectation that the energy transition could make refineries stranded assets has deterred investment".
A sharp rise plug-in electric vehicle sales, which are expected to grow from 6.6 MM last year to 35.7 MM at the end of the decade, will likely displace 4 MMbpd of gasoline and diesel demand. The falling refining capacity comes at a time when global fuel inventories are tight and as Russian and Chinese exports of fuels are being constrained, the report said.
Sanctions and embargoes have displaced nearly 3 MMbpd of Russian products that are not easily rerouted. And Chinese product exports are down 30% from 2019 levels as the government has strategically shifted to prioritising domestic markets.
As per MRC, Saudi Aramco has notified at least three North Asian buyers that it will supply full contractual volumes of crude in October. The world's top oil exporter has slashed its official selling prices (OSPs) to Asian buyers for the month, the first reduction in four months. The price cut was overall in line with the market expectation as the spot premiums for the Middle Eastern crude dipped since mid-August amid an increasing number of arbitrage cargoes flowing into Asia.