Global oil refiners to deepen output cuts

Annual oil consumption this year will drop 4.25 million bpd from 2019 levels, Goldman Sachs says.

27 March 2020 | Economics

SINGAPORE - Oil refiners from Texas to Thailand are bracing for deeper output cuts, bruised by an unprecedented demand shock as more countries lock down and restrict travel to contain the spread of the coronavirus.

In Asia, home to over a third of the global refining capacity, India's top refiner has slashed output by up to 25%-30% while operators in Japan, South Korea and Thailand - already running at reduced rates - are looking at more cuts even as they shut plants for maintenance.

In Europe, some refineries in Britain and Germany have scaled back production, with traders expecting many others to follow suit as demand for products falters. ExxonMobil's French subsidiary said last Friday it would adapt production at its two refineries in the country to falling demand.

Several US refineries have also cut back production, including plants in the Los Angeles area, a busy hub for air travel. Fuel demand is starting to sink in the United States, with overall products supplied falling by 2.1 million bpd in the most recent week, a near 10% drop.

Global oil demand will likely slump 18.7 million barrels per day (bpd) in April, versus a 10.5 million bpd drop in March, Goldman Sachs analysts said. Total annual consumption will drop 4.25 million bpd from 2019 levels, they added.

"Such a collapse in demand will be an unprecedented shock for the global refining system," the analysts said.

Asia accounts more than 60% of world oil demand growth.

Pandemic

The virus pandemic has roiled financial markets and oil has been hit particularly hard, crashing about 60% so far this year - on track for its biggest quarterly loss ever.

Refiners in Asia are now losing money as domestic demand has dried up with people staying at home, and bleak margins not making exports lucrative either.

A complex refinery in Singapore stands to lose nearly US$2 for every barrel of crude it processes, including losses of more than US$6 a barrel on gasoline production, Reuters calculations show.

To make matters worse, some refiners have been unable to use the downtime for maintenance purposes due to manpower shortages as a result of lockdowns and travel curbs.

"This first quarter would be the worst first quarter we have ever seen as producing oil products was loss-making," said Cho Sang-bum, an official at the Korea Petroleum Association. – Nampa/Reuters

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