OUTLOOK ’16: Gasoline margins key to keeping refinery output up
Cuckoo James
29-Dec-2015
LONDON
(ICIS)–Crude oil refineries in the Middle East, China and
Europe are expected to contribute heavily to keeping global
refining utilisation rates at its highest since 2007 for
the foreseeable future, provided gasoline margins remain
high.
“Throughput for 4Q15 and 1Q16 are estimated at 79.7m b/d and
79.6m b/d, respectively, with yearly growth of 1.4 mb/d for
each quarter,” the International Energy Agency said in its
December Oil Market Report.
European refiners are keen to continue this year’s
high run rates provided benchmark Brent crude oil
futures remain at low levels and gasoline demand stays as
high as it has for most of 2015.
Gasoline is set to reign as the chief road transport fuel at
least until 2040, although diesel share in the pool will
increase up to 45% by that time, according to OPEC’s World
Oil Outlook 2015.
US drivers bought 3% more gasoline from January to
September 2015 than they did the same time last year, riding
high on the confidence coming from high
employment rates.
The highly price-elastic US market also took advantage of the
value slump in oil to pocket more fuel for less
dollars. Next year too, a lot could depend on how
crude oil performs next year.
At its 4 December meeting this year, OPEC indicated
it was planning to continue the policy of defending
its market share in a low price environment. Crude oil prices
have plunged to 2004 levels since that crucial meeting, and
many predict it will stay low on the back of rising supplies.
The US Energy Information Administration (EIA) estimates OPEC
crude oil production averaged 30.1m bbl/d in 2014, and will
increase by 900,000 bbl/d in 2015, led by production growth
in Iraq.
The EIA forecasts OPEC crude oil production will rise by
300,000 bbl/d in 2016, with Iran forecast to increase
production once international sanctions targeting its oil
sector are suspended.
Crucially, the EIA predicts Brent crude oil futures will
average $53/b in 2015 and $56/b in 2016.
The US gasoline growth story could thus be here to stay
if crude futures keep low, but at a much reduced 0.1% hike in
2016, as per the EIA’s Short-term Energy Outlook published in
December 2015.
The culprit in the slower growth next year is improving
vehicle fuel economy over the past eight years which
continues to keep gasoline consumption below its previous
peak.
On 30 November, the US Environmental Protection Agency (EPA)
finalised a rule cementing Renewable Fuel Standard (RFS)
volumes through to 2016. Following this, ethanol share of the
total gasoline pool is expected to average 9.9% in 2015 and
10.0% in 2016, as per the EIA.
Asia is another export destination for European gasoline and
blending components. “The motorisation of the population in
the developing countries is one of the principal factors of
the future growth in demand for oil,” Lukoil said in its
Global Trends in Oil and Gas Markets to 2025.
“In the forecast period, the most noticeable increase in car
ownership will take place in China leading to 220m car fleet
increase for the period of 2010-2025. Significant growth in
car ownership will also be registered in India and other
developing Asian countries,” the oil giant said.
This year, European gasoline markets were buoyed by
intermittent demand from China as well as Nigeria,
another major emerging market buyer.
Successive attempts by the Muhammadu Buhari government to
hike Nigerian refinery utilisation rates from its long term
10% has met with limited success, and the country continues
to rely on imports to meet its fuel requirements. This market
is expected to be strong buyer of European gasoline for the
near term.
Although European gasoline trading firms are keen to capture new business in emerging markets, some maintain the current slowdown in the Chinese economy is an important inflection point for commodity markets.
“Combined with the uncertain prospects for global GDP growth in 2016, it means that markets, whether for oil or for metals and minerals, will be characterised by surplus supplies and relatively depressed prices for some time to come – in some markets, for another several years,” Jeremy Weir, CEO of trading firm Trafigura said in the company’s annual report.
By Cuckoo James
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