The economic recession and subsequent slow recovery have slashed oil demand in the OECD, leaving surplus refining capacity, particularly in Europe and Japan. Crude runs in the US, Europe and Japan fell by 4 mbpd in 2008-2009 to their lowest level for 20 years. While Atlantic Basin refiners have struggled to sustain throughputs, crude runs in Asia have continued to rise, even throughout the recession, highlighting the shift in the focus of the refining industry from west to east.
Throughputs were just beginning to recover when the industry was hit first by a complete halt to Libyan crude exports and then by a massive earthquake and tsunami in Japan. The loss of Libyan oil left small European refineries struggling to find affordable substitutes and many cut utilisation rates or closed altogether. The Japanese earthquake forced three large refineries out of operation in the second quarter and crude runs were cut, as demand fell in the aftermath of the disaster.
High crude prices in the first half of this year left their mark on margins. Straight-run margins in particular have been largely unprofitable, keeping utilisation rates in Europe and the US at historically low levels of around 80%. Several refineries have been permanently closed or put up for sale. In non -OECD countries, however, capacity continues to expand, with an additional 1 mbpd expected to be on stream by the end of this year.
Investment in upgrading capacity has reduced the average fuel oil yield to less than 10%, bringing refinery output yields closer to the composition of the demand barrel. Middle distillate yields have risen sharply, adding another 2 mpbd to global supplies and preventing another spike in diesel margins, even when refinery runs fell sharply in the second quarter.
US refiners have been able to sustain higher utilisation rates than are necessary to meet domestic demand because of strong demand for distillate imports in Latin America, where there have been no additions to refining capacity for several years. In contrast, European refiners have been hit by a fall in the US’ need for gasoline imports.