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REFINERY MARGIN TRACKER: European margins end the week lower on omicron concerns, run cuts possible

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REFINERY MARGIN TRACKER: European margins end the week lower on omicron concerns, run cuts possible

Highlights

European margins soften on tighter restrictions

Asian margins remain healthy

US margins weaken amid variant fears

European refining margins declined in the week ended Dec. 3, weighed down by concerns of what impact the omicron coronavirus variant could have on oil demand, an analysis from S&P Global Platts showed Dec. 6.

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While the US Center for Disease Control continues to track omicron, saying it does not know how easily it spreads, S&P Global Platts Analytics expects global demand in Q1 2020 to be weaker.

In Europe, restrictions have begun to tighten, with Austria reviving a national lockdown, and other countries adding mask and vaccine mandates.

For the week ended Dec. 3, Northwest Europe refining margins for Urals rose 20 cents/b week on week to average $5.50/b, while CPC Blend refining margins in the Mediterranean averaged $6.04/b, up from the $5.88/b average for the week ended Nov. 26, according to margin data from Platts Analytics.

However, day-on-day margins for both NWE Urals and Mediterranean CPC Blend were lower, as fears of the rapidly spreading omicron variant continued to roil markets. NWE Urals dropped from $6.05/b on Dec. 2 to $5.55/b on Dec. 3, while CPC Blend fell from $6.71/b to $6.16/b during the same time period.

While aggregated regional margins remain healthy, European margins for refiners most exposed to gas prices are zero or even negative right now, said S&P Global analyst Rick Joswick.

"But if they can't switch, they may just cut runs," he added. By switching, he means refiners are burning the LPG produced at the plant in lieu of buying natural gas and running their reformers harder to consume more naphtha.

And for fuel switching there is "limited capability/regulatory ability to use oil fired furnaces," he said.

Platts Analytics forecasts fuel switching for users between natural gas and fuel oil is about 500,000 b/d, but that is mostly at power plants and mostly in Asia, with refineries accounting for between 100,000 b/d to 150,000 b/d globally.

US refiners benefit

According to JP Morgan analyst Phil Gresh, despite rising clean product inventories and a weakening in demand, US refiners are expected to benefit from European margin weakness.

"The good news for US refiners is European margins have continued to fade enough on omicron concerns that it appears to be prompting discussions of run cuts in the region of as much as 10% to 20%," he wrote in an Dec. 5 report.

Global gasoline exports from NWE for the week ended Dec. 3 averaged 862,000 b/d, down 122,000 b/d from the week earlier, according to Kpler commodity tracking data. Of that, 206,000 b/d was destined for the US Atlantic Coast, which was 122,000 b/d lower than the week earlier.

USAC gasoline imports from Mediterranean refiners rose by 17,000 b/d to reach 65,000 b/d, Kpler data showed, with two cargoes going into New York Harbor.

USAC cracking margins for Bonny Light softened but surpassed those in Europe. For the week ended Dec. 3, they averaged $10.34/b, down from $11.88/b a week earlier.

At this point, Asian margins appear immune from run cuts as margins remain healthy. Southeast Asian Urals cracking margins averaged $3.65/b for the week ending Dec. 3, up from the $3.03/b the week earlier.

"Asian refiners are reportedly not yet considering run cuts, though this could change if the omicron threats grow," Gresh added.

US Atlantic Coast Refining Margin Averages ($/b)

Bonny Light Cracking

Arab Light Cracking

Bakken Crude Cracking

Forties Cracking

Week ending December 03

10.34

8.07

8.42

8.53

Week ending November 26

11.88

10.53

9.86

9.41

Q4 to date

13.58

11.26

11.24

12.09

Q4-20

4.19

2.84

3.55

4.29

Q3-21

13.60

10.14

11.18

12.29

Q2-21

11.72

8.16

10.18

10.59

Source: S&P Global Platts Analytics

US Gulf Coast Refining Margin Averages ($/b)

Arab Light Cracking

WTI MEH Cracking

LLS Cracking

Mars Coking

Week ending December 03

9.08

12.92

12.70

13.37

Week ending November 26

10.95

13.26

14.18

14.92

Q4 to date

11.31

14.32

14.70

15.44

Q4-20

2.42

6.01

5.47

4.25

Q3-21

10.65

14.55

14.12

14.32

Q2-21

8.66

13.12

11.79

11.53

Source: S&P Global Platts Analytics

US Midwest Refining Margin Averages ($/b)

Bakken Cracking

WTI Cushing Cracking

Syncrude Cracking

WCS ex-Cushing Coking

Week ending December 03

12.39

10.96

12.28

15.56

Week ending November 26

12.39

11.00

12.20

16.14

Q4 to date

13.88

12.52

13.72

17.33

Q4-20

6.66

4.54

7.68

4.22

Q3-21

16.64

15.31

15.82

17.52

Q2-21

16.69

14.80

14.18

15.87

Source: S&P Global Platts Analytics

US West Coast Refining Margin Averages ($/b)

ANS Cracking

Vasconia Coking

Arab Medium Coking

Maya Coking

Week ending December 03

16.83

25.85

19.89

22.68

Week ending November 26

17.02

26.81

21.24

21.03

Q4 to date

18.32

26.55

19.89

21.02

Q4-20

10.14

12.04

8.81

12.47

Q3-21

17.15

24.76

17.75

20.13

Q2-21

16.86

22.14

16.57

18.86

Source: S&P Global Platts Analytics

Singapore Refining Margin Averages ($/b)

Dubai Cracking

Arab Light Cracking

ESPO Cracking

Arab Light Coking

Week ending December 03

1.15

0.07

4.36

1.15

Week ending November 26

0.23

-0.11

3.16

0.91

Q4 to date

3.09

2.43

4.50

3.63

Q4-20

-0.48

0.09

-0.81

0.01

Q3-21

0.65

-1.24

2.62

-0.76

Q2-21

-0.74

-1.76

1.04

-1.46

Source: S&P Global Platts Analytics

ARA Refining Margin Averages ($/b)

WTI MEH Cracking

Bonny Light Cracking

Arab Light Cracking

Urals Cracking

Week ending December 03

5.38

7.19

4.33

5.50

Week ending November 26

4.95

7.15

4.16

5.30

Q4 to date

6.74

9.19

6.22

7.71

Q4-20

1.09

1.66

0.47

0.96

Q3-21

6.08

7.69

4.08

6.52

Q2-21

4.20

5.33

2.96

4.55

Source: S&P Global Platts Analytics

Italy Refining Margin Averages ($/b)

Urals Cracking

CPC Blend Cracking

Arab Light Cracking

WTI MEH Cracking

Week ending December 03

5.21

6.04

3.10

4.03

Week ending November 26

5.08

5.88

2.99

3.76

Q4 to date

6.73

7.54

4.37

4.71

Q4-20

1.12

2.78

-0.12

0.70

Q3-21

7.20

8.12

3.30

5.55

Q2-21

3.86

5.74

1.31

2.95