A detailed assessment of the mid/long-term operating environment for global refining and the implications for products trade. We forecast product demand and review refinery investment to identify the likely pressures on the refining sector and what this could mean for refining margins in the next 5-10 years.
Despite the recent OPEC and non-OPEC production agreements, we continue to forecast a low price oil environment for the foreseeable future. Consequently, we expect products demand to be robust, especially for light distillates (naphtha and gasoline) but also for middle distillates too. At the same time CAPEX for investment in any part of the oil business will be limited, with refining investment continuing to be under pressure. While there are many projects announced in the press, only a small percentage are actually built! Consequently, the pressure on existing capacity and what is actually built is increasing. There is plenty of potential for the strong cracks and margins seen over the last 2 years or more to continue. In this study we look at this potential, what the main drivers are and how long it could last for.
Refiners are continuing to invest in sophisticated upgrading capacity, essentially converting fuel oil into gasoline and distillate. Recent and imminent new capacity has focused on distillate production in particular. But has the low crude price environment resulted in a shift towards gasoline and if so, how long will this last for?
2020 will see the biggest ever change to the demand barrel with the introduction of new specifications for bunker fuel oil (to 0.5%S max without flue gas mitigation) for the world’s marine fleet. We look at how refiners and the fleet will react to this, the implications for distillate and fuel oil demand and balances, product cracks and refinery margins. Will there be enough refining capacity? Is there enough distillate available? What will happen to product prices, especially for fuel oil?
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