Global refinery throughput to rise from April to August: IEA

Global refinery throughput should increase by 4.4 million b/d from April to August "due to new capacity and normal seasonal gains," the International Energy Agency said in its latest monthly report, released April 13.

New capacity coming online in the Middle East and China would boost the gains, the IEA said.

Two new refineries in the Middle East -- Jazan and Al-Zour -- are expected to be fully online later this year, according to S&P Global Commodity Insights. In China, Shenghong Petrochemical is due to start after postponing several times since 2021, with Guandong Petrochemical also set for commissioning by the end of this year. Malaysia's Pengerang Refining and Petrochemical integrated complex, also known as PRefChem, is also expected to resume operations in Q2.

The rise of throughput between April and August would allow "product inventories to see the first build in two years, offering some respite to the tight market," the IEA said.

However it noted that Russian refinery intake remains "a key uncertainty."

So far Russian refiners that export predominantly heavier products and secondary feedstock via the Black Sea "have borne the brunt of run cuts," the IEA said, adding that the export reductions through the southern routes stem from "buyers' abstention but also from higher shipping and insurance costs, and other challenges in the region immediately adjacent to the military action."

According to S&P Global, refineries in the south of Russia, which export fuel oil, VGO and naphtha, are halting or halving their throughput, including the Tuapse refinery, but also smaller and medium-sized plants, such as Novoshakhtinsky. Taif refinery in central Russia was also reported to be halting processing as its usual buyer, a nearby petrochemical plant, stopped taking its naphtha.

"While some of these flows may resume when the active phase of the war is finished, for now we assume that product export cuts will deepen, rather than ease," the IEA said. The International Energy Agency expects flows via the Baltic Sea also to be affected, resulting in 1 million b/d year-on-year fall in Russian refinery throughputs in 2022.

Meanwhile in the rest of the world "higher utilisation rates and new refineries step in to fill the gap, allowing global product markets to exit the year with no overall stock draws," the IEA said.

According to its forecast, global refinery runs will gain 3 million b/d in 2022 year on year to 80.9 million b/d, but remain below 2017 levels.

It also expects global refined product consumption to be back to pre-2017 levels, which "under normal circumstances" would be "bearish" for refinery margins. However this is countered by "disruption of Russian exports, capacity constraints and low inventories" which point to continued tightness of the products markets.

Even as Q1 2022 throughput has gained 4.1 million b/d year on year to 79.8 million b/d, "product markets were still undersupplied," the IEA said.

Refinery margins surge

In the wake of Russia's invasion of Ukraine, oil markets have experienced "the most significant shock" since the early 1980's, the IEA said.

One of the aftermaths has been a surge of products cracks and refining margins.

US Gulf Coast gasoline cracks surged past $30/b, "a mark that is usually breached only during hurricanes which trigger major refinery outages."

NWE gasoline cracks rose "to record daily rates" at the end of March, whereas the diesel crack "leapt past historical record levels" on ICE gasoil futures expiry, and jet cracks "almost tripled" month on month in March.

Refinery margins also surged to "multiyear highs" in March "on exceptionally strong diesel and gasoline cracks."

In Singapore, Dubai cracking margins hit a monthly average record, and in the Atlantic Basin were "only below" the levels registered during the 2008 and 2012 hurricane seasons, the International Energy Agency said.

US refiners responded to the higher margins by ramping up throughput, also boosted by stable domestic demand and increased exports "particularly as European importers sought to switch away from Russian products."

In Europe, the growth rate is expected to reach 660,000 b/d this year "but there is a possible downside to this forecast in the event of a full ban on Russian feedstocks," the IEA said, adding that Urals crude accounts for around 20% of OECD Europe refinery intake.

"A complete switch to other crudes by refiners that currently use Urals could cut European runs by up to 300,000 b/d due to constraints in downstream processing units such as light ends fractionation, hydrotreatment and heavy residue upgrading," the report said.

A major earthquake shut some of Japan's refineries, with run cuts likely in China "as refiners were faced with lower domestic demand due to a new wave of COVID lockdowns."

In India, completion of refinery upgrades is expected to add 270,000 b/d total capacity by the end of the year, the IEA said.

Refineries currently undergoing expansion projects due for completion this and next year, include HPCL's Vizag, IOC's Barauni and Gujarat, according to S&P Global.