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IEA revises down global refinery outlook on coronavirus

London — The International Energy Agency Thursday revised down its outlook for global refinery runs due to the coronavirus outbreak.

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Global runs are expected to expand "by just" 700,000 b/d in 2020 to 82.7 million b/d as a result of contracting Chinese crude throughputs. Total 2020 refinery throughput has been revised down by 600,000 b/d, "following a demand downgrade due to the impact of the novel coronavirus (Covid-19)."

China's refineries throughputs for the first quarter have been cut by 1.1 million b/d to 12.2 million b/d and are now expected to contract by 500,000 b/d year on year, the IEA said in its latest monthly report.

Global runs in Q1 are also expected to fall 1 million b/d to 80.9 million b/d, making it the "fourth consecutive quarter of sizeable year-on-year declines."

The agency however expects "a gradual recovery" or refinery intake from Q2.

The agency has also revised down its 2019 estimates, with 2019 global refinery runs estimated at 82 million b/d or down 350,000 b/d on the year. Despite the fall, overproduction in 2018, "when the increase in refinery runs was triple the rate of refined product demand growth", ensured "the lack of turbulence in product markets in January 2020" when the new International Maritime Organization marine fuel sulfur cap regulations came into force.

The launch of IMO's new bunker fuel regulations "boosted simple refining margins based on sweet crudes", the IEA said, adding that sweet crude hydro-skimming margins were overtaking sour coking margins in a "rare phenomenon."

High sulfur fuel oil cracks surged on tight supply "from lower refining activity" but also "strong demand" from refineries on the US Gulf Coast for "heavy feedstocks to feed conversion units." As a result Russian straight-run fuel oil has found outlets "in the US Gulf Coast, where refiners are hungry for heavier molecules, in the absence of Venezuelan grades and lower availability from Mexico."

Traders and analysts have attributed the unexpected support for HSFO to reduced output as refineries have been maximizing very low sulfur fuel oil output at the expense of HSFO as well as to more HSFO being used by US refiners for processing in cokers.

"The crude diet of USGC refiners is increasingly lighter, resulting in a shortage of residue feedstock relative to the size of available secondary processing capacity," the IEA said.

By contrast, "diesel cracks fell slightly in January," the IEA said, adding that "marine gasoil take up of as a replacement for HSFO bunkers was limited at the beginning of the year."

Contrary to expectations the new IMO regulation has failed to boost distillate markets, with oil companies indicating in their recent reports expectations of this materializing later in the year.