Global oil refiners to deepen output cuts as coronavirus destroys demand

SINGAPORE/NEW DELHI/SEOUL/HOUSTON: 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.

Global fuel demand is set to drop by as much as 15pc to 20pc in the second quarter as a result of the coronavirus pandemic, which has killed more than 22,000 people, shut most worldwide air travel and has numerous countries imposing lockdowns keeping people at home and out of their cars.

The sudden stoppage in activity, along with Saudi Arabia and Russia’s decisions to increase crude supply, is expected to overwhelm refiners, who have fewer options to sell product and dwindling storage capacity.

In Asia, home to over a third of the global refining capacity, India’s top refiner has slashed output by up to 25pc-30pc 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.

Several US refineries have also cut production, including plants in the Los Angeles area, a busy hub for air travel, and Exxon’s Baytown, Texas facility, its largest in the United States, which is shutting a gasoline-making unit.

US fuel demand is sinking, with overall products supplied falling by 2.1 million bpd in the most recent week, a near 10% drop. Gasoline demand in the nation, the world’s biggest oil consumer, could drop by nearly half in coming weeks, IHS Markit said Thursday.

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 on Friday it would adapt production at its two refineries in the country to falling demand.

Independent refiner Phillips 66 said its first-quarter refinery utilisation rate was in the low-to-mid-80s range, with many of their refineries operating near minimum rates.

China, which restarted its economy after weeks of lockdown, is an outlier with its refining sector showing signs of recovery amid a decline in the number of new virus cases.

SLIDING GLOBAL DEMAND

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.

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

Refiners 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 $2 for every barrel of crude it processes, including losses of more than $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.