Refiners cash in despite OPEC oil cuts

A global deal to cut oil production has had the unintended consequence of aiding Europe’s older refineries by bolstering supplies of light crude while curbing shipments of the heavier grades favoured by more advanced plants
in other continents.

These European units, long thought doomed by competition from state-of-the-art refineries in the Middle East, Asia and the United States, are in the right place at the right time, enjoying good demand and oil availability that is, for them, growing.

“European refiners are well positioned versus the OPEC cuts,” said David Wech, managing director of consultancy JBC Energy. “The supply that is taken out of the market hits primarily the Asian market.”

A deal between the Organization of the Petroleum Exporting Countries and non-member producers to cut output by 1.8 million barrels per day (bpd) has held oil prices roughly 20 percent above the low just before they sealed the pact
late last year.

Pricier crude often saps refiners’ earnings. But refinery margins, a measure of profit, stood near $7 per barrel for a simple plant processing Brent crude in Rotterdam, 50 percent above the first-quarter average last year.

Part of the benefit is that most of the oil cut by OPEC was heavy crude preferred by the more complex refineries, which by and large are not in Europe. European refineries are in general older and less complex than the newest units, such as the giant Jamnagar plant in India. Simpler refineries often prefer easierto- process light oil, which is in
abundance in Europe’s backyard as OPEC producers Libya and Nigeria  were exempt from the cuts.

Crude from Kazakhstan’s Kashagan field is also pumping away. The International Energy Agency raised its 2017 forecast for growth in global oil demand to 1.4 million bpd. But at the same time, refineries in Latin American oil
producers Venezuela, Mexico and Brazil have grappled with fires, unplanned shutdowns and lower production – leaving little surplus refining capacity.