London — Refineries in Northwest Europe have started to cut runs or change crude slates due to the ongoing weak margin environment in the region, sources said.
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"Refinery runs are being cut, but most likely not to the extent as everyone makes it seem. Perhaps 15%-20% will go," a crude trader said, adding that less complex refineries might see larger cuts.
At least one major oil company has seen cuts to its refinery slate, sources said, with others in Northwest Europe considering it as cracks remained poor, particularly for light end products.
"Refineries will trim gasoline products [as they] have poor yields," one gasoline trader said.
Other sources said some refineries have maximized their middle distillate yields, as that part of the market has not seen the same fall in margins as the light and heavier ends.
"The only thing you can do is reduce FCC runs because they make the majority of gasoline. Hydrocrackers are majority distillate...and then the feed that goes into the FCC that you are not running, i,e. VGO, you put into the bunker fuel pool," a second gasoline trader said.
"That will happen for sure in 2020 post IMO, but it is getting so bad on gasoline that some might start early."
In recent financial reports on Q4 2018 trading, oil companies referred to deteriorating refining margins, especially for gasoline and naphtha, with many expecting lower margins in 2019.
However, its not just the light end of the barrel which has seen cuts.
While some refineries have recently been maximizing sour crudes due to improved fuel oil cracks, these seemed to have tailed off for others.
"We are long [sour crude] and are trying to offload length as our refineries cut sour requirements," said one crude trader, adding he has tried to re-optimize short-haul crudes like Russia's medium sour Urals.
Other crude traders talked of switching to run more medium sweet crudes to take advantage of the increased US arbitrage flows into the region.
"I think some refineries are switching qualities of crude, to WTI Midland for sure," said a second crude trader.
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