Singapore — The global coronavirus pandemic has brought unprecedented demand destruction in its wake, but a recovery is underway and refiners will have to leverage opportunities and reposition themselves to emerge from its challenges, industry experts said at a panel discussion during the virtual APPEC 2020 event.
The coronavirus had hit demand a "great deal," head of global demand and Asia analytics at S&P Global Platts Kang Wu said. This accentuated the plight of an industry, which was already reeling from lower demand due to a variety of other factors such as seasonal weather patterns and a weak global macro-economic backdrop, he said.
While a recovery was in sight, the coronavirus continued to cloud this recovery. Even as of August, S&P Global Platts Analytics estimated that global oil demand was more than 8 million b/d below that of last year, Wu added.
General manager of the crude oil and tanker department at Japanese refiner Cosmo Oil, Mitsuyasu Kawaguchi, said that the industry was facing tremendous short-term challenges as from demand destruction and was also grappling with long-term hurdles due to the energy transition.
Back in March-April, a huge contango emerged and then prompt cargoes were being traded at a hefty discount. So refineries and traders with extra storage space capitalized on it to the tune of tens of millions of dollars, Kawaguchi said.
However, that was no longer the case, he said. "There is some contango emerging but it's not simply not as we witnessed back in April."
Complex refineries were facing a hard time as reforming, cracking and coking margins were depressed, he said. The API spread was depressed too and had occasionally flipped to a minus, he added.
"US shale structural production decline is a concern. But delivered in the Atlantic Basin, demand recovery is going to lag behind the Asia-Pacific," Kawaguchi said.
"So, I hope and I am expecting that we Asian refineries could grab some opportunity to bring cheaper barrels, particularly lighter grades, sweeter grades in coming months...That's how we are trying to survive through the short-term challenge," he added.
China relatively immune
China's oil demand was still growing compared with last year, though at a smaller pace due to the coronavirus, head of the research and strategy department at Unipec, Fairy Wang Pei, said.
China imported huge volumes of crude grades over April-June, with imports averaging 11 million b/d over January-July, translating into 11.5% year-on-year growth, according to data from the General Administration of Customs.
Low crude oil prices attracted huge buying interest, especially from independent refineries, which has used up almost their entire annual quotas by the middle of the year.
Meanwhile, China's product exports, which had been increasing year on year for the past five years, started to fall this year due to lack of export profits, she said.
As a result, in January-July, China's net oil products exports dropped by about 7% year on year, she added.
Still, compared with refineries in other countries, China's refineries were "really lucky" to have had good refining margins throughout the pandemic, she said.