- European Refinery Closures Threaten Long-Term Supply.
- US Refineries Struggle Under Heat and Operational Issues.
- China Cuts Runs but Maintains Strong Export Flows.
Last month, global refining runs hit just over 85 million barrels per day, marking the highest level since the pandemic began. This surge was fueled by strong summer demand and favourable profit margins, prompting refiners to ramp up production and push seaborne clean petroleum product exports to a 16-month peak. In the Middle East, plants operated at nearly full capacity, while Europe experienced record imports of jet fuel. However, as 3.5 million barrels per day of refining capacity goes offline for maintenance in the coming weeks, runs are expected to dip before bouncing back to set another record by the end of the year, according to the IEA, reports Gibson.
Europe’s Refinery Challenges
The refining industry in Europe is facing significant challenges due to regulatory pressures and stiff competition. The UK’s Lindsay refinery, with a capacity of 113,000 barrels per day, has shut down following Prax’s insolvency, just after the closure of the 150,000 barrels per day Grangemouth plant. Market share is dwindling as Nigeria’s Dangote refinery expands its capacity, despite facing its own operational hurdles.
US Refinery Struggles
In the US, refinery closures are also on the rise, with Phillips 66 winding down its 139,000 barrels per day facility in Los Angeles and Valero planning to close its 160,000 barrels per day Benicia refinery. While policy changes might help slow this decline, California is even considering assisting in keeping the Benicia plant operational. Additionally, competition from Mexico’s new Olmeca refinery and Russian oil shipments to Brazil are putting further pressure on US refiners.
China’s Refining Landscape
China is grappling with a drop in domestic demand and government pressure to streamline its refining capacity. Over the past year, several plants have shut down, and stricter tax enforcement has impacted smaller independent refiners. The growing popularity of electric vehicles is also contributing to a long-term decline in fuel consumption growth.
Growth Shifts to Non-OECD Markets
We’re looking at a global throughput increase of 500,000 b/d by 2026, with OECD runs dropping by the same amount. Meanwhile, non-OECD countries, particularly in the Middle East, are set to add an impressive 1 million b/d. The expansion of Bahrain’s Sitra refinery will help boost output, but rising domestic demand might limit export volumes down the line.
Geopolitical Risks to Trade
Trade flows are still at the mercy of geopolitical tensions. Starting in January, Europe will impose a ban on refined products from India and Turkey that are linked to Russian crude. On top of that, Russian refineries and terminals are facing attacks from Ukrainian drones, which is jeopardising export stability and adding more uncertainty to global CPP trade.
VLCC Market Tightens in MEG
A dip earlier this week absorbed some tonnage in the MEG, leading to a sharp rebound. Owners have pushed TD3C rates higher, with AG/China at WS93.5 and AG/USG at WS57.5. The sentiment remains strong as we see September stems coming in.
Suezmax and Aframax Activity
Suezmax rates in the AG/West have held steady at WS60, while Eastbound routes might climb above WS112.5 following the VLCC rally. In Asia, Aframax rates have remained stable with tight lists mid-month, although more tonnage is expected toward the end of September. Indo/Oz earnings are hovering around $20k/day, with owners looking to maintain that floor.
West Africa Market Strengthens
Tonnage in West Africa is still tight, with IOC paying three-digit WS for early positions. We’re assessing WAF/China at WS95 and expect TD20 to push past WS112.5 next week, as owners are leaning towards long-haul runs East.
Mediterranean and USG Trends
Mediterranean Aframax rates held around WS130–142.5, with Libya cargoes offering small premiums. In the US Gulf, TD22 lags but is tightening, with USG/China assessed at $10.8m. Panamaxes saw TD21 firm to WS160 by week’s end.
Product Tankers Weaken
LR2s and LR1s in the AG softened on weak demand, with TC1 correcting to WS140 and TC5 at WS155. MRs in the AG collapsed as tonnage built up, pushing TC17 down to WS185 and TC12 to WS130. In the UKC and Med, MR and Handy rates hovered near recent lows, with owners holding the line despite pressure.
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Source: Gibson
