• 7 hours Russia Approves Profit-Based Oil Tax For 2019
  • 11 hours French Strike Disrupts Exxon And Total’s Oil Product Shipments
  • 13 hours Kurdistan’s Oil Exports Still Below Pre-Conflict Levels
  • 15 hours Oil Production Cuts Taking A Toll On Russia’s Economy
  • 17 hours Aramco In Talks With Chinese Petrochemical Producers
  • 18 hours Federal Judge Grants Go-Ahead On Keystone XL Lawsuit
  • 20 hours Maduro Names Chavez’ Cousin As Citgo Boss
  • 1 day Bidding Action Heats Up In UK’s Continental Shelf
  • 1 day Keystone Pipeline Restart Still Unknown
  • 1 day UK Offers North Sea Oil Producers Tax Relief To Boost Investment
  • 2 days Iraq Wants To Build Gas Pipeline To Kuwait In Blow To Shell
  • 2 days Trader Trafigura Raises Share Of Oil Purchases From State Firms
  • 2 days German Energy Group Uniper Rejects $9B Finnish Takeover Bid
  • 2 days Total Could Lose Big If It Pulls Out Of South Pars Deal
  • 2 days Dakota Watchdog Warns It Could Revoke Keystone XL Approval
  • 3 days Oil Prices Rise After API Reports Major Crude Draw
  • 3 days Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 3 days Gazprom Speaks Out Against OPEC Production Cut Extension
  • 3 days Statoil Looks To Lighter Oil To Boost Profitability
  • 3 days Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 3 days Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 3 days Whitefish Energy Suspends Work In Puerto Rico
  • 3 days U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 3 days Thanksgiving Gas Prices At 3-Year High
  • 3 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 4 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 4 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 4 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 4 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 4 days ConocoPhillips Sets Price Ceiling For New Projects
  • 6 days Shell Oil Trading Head Steps Down After 29 Years
  • 6 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 7 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 7 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 7 days Venezuela Officially In Default
  • 7 days Iran Prepares To Export LNG To Boost Trade Relations
  • 7 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 7 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 7 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 7 days Rosneft Announces Completion Of World’s Longest Well
Alt Text

U.S. Shale To Beat Saudi Production Growth

In its latest report, the…

Alt Text

Markets Shrug On Flat Oil Rig Count

The United States oil rig…

Alt Text

Falling Iraqi Oil Output Drags OPEC Production Down

OPEC’s total crude production has…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

The Oil Bust Is Great For Business Here

The Oil Bust Is Great For Business Here

Low oil prices are crushing a lot of upstream exploration and production companies. But downstream, refiners are having a field day.

The collapse in oil prices has been a boon to refiners for two big reasons. First, for oil drillers, selling oil is where their revenues come from. But for refiners, oil is a cost, not the end product. Lower prices mean lower costs. Second, cheap oil means that consumers get hooked on cheap sources of fuel. As any driver who has been to fill up their car lately would know, it is the cheapest time in years to drive a vehicle. Refiners have been experiencing inordinately high demand for their products over the past year.

In fact, the high demand for gasoline, diesel, jet fuel and other sources of refined products have refiners running their facilities at the highest rates in years. In the U.S., the refining industry briefly hit 17 million barrels per day (mb/d) of refined products in July and August, the highest level ever recorded. Related: Two Big Oil And Gas Finds In Unexpected Places

(Click to enlarge)

That has U.S. refineries operating nearly flat out. Total refinery utilization in the U.S. has largely stayed above 90 percent since April. And running refineries at full capacity makes sense. Refining margins widened to 66 cents per gallon on July 8, the highest level in almost seven years, according to EIA data. Demand for gasoline in the U.S. was up nearly 3 percent for the first five months of 2015 compared to the same period last year.

(Click to enlarge)

Demand for refined products is growing around the world, as global consumers respond to low prices. U.S. refiners saw their exports jump by 19 percent in the first half of this year.

In Europe, too, refiners are enjoying good times. Downstream has not always been a source of excessive profits, but for now, the margins are attractive. In the second quarter, European refining margins were at their highest on record (for the second quarter) since data began being collected by Reuters in 1997. Related: The Biggest Red Herring In U.S. Shale

“European refiners are enjoying a rare period of high margins. We think we are past the peak but that margins are likely to stabilise at a higher level than expected by the market over the next couple of years,” UBS wrote in a recent research note.

In the U.S., record level refinery runs have provided an outlet for excess crude that has been piling up around the country. But even with refiners running their facilities as much possible, the level of crude diverted into storage spiked this year, a testament to how profound the glut has been. Crude storage levels have since been drawn down from their highs reached this past spring.

Despite boom times for the downstream sector, refineries have to undergo periodic maintenance, which cuts down on their ability to produce. Refining runs in the U.S. have already dropped from their highs of 17 mb/d. For the last week in August, the U.S. refining industry produced 16.3 mb/d, still above the five-year average.

Globally, seasonal maintenance could knock 5 mb/d of refining capacity offline, according to UBS, or about 7 percent of total capacity worldwide. “This together with seasonally higher demand for heating oil in colder weather and lower crude losses at low oil prices will in our view support refining margins for the rest of this year,” UBS analysts concluded. Related: Alberta’s Oil Companies Warn Government On Taxes

The coming spell of outages could have two effects, with varying impacts on companies depending on whether they are upstream or downstream. A temporary downturn in refining utilization could push down oil prices in the third and fourth quarter, as less crude is taken up by refiners. A faster contraction in production upstream could offset such a scenario, but given the fact that U.S. shale companies are contracting at a relatively slow pace, more crude may be diverted into storage if refining capacity shrinks. That’s negative for oil prices.

Downstream, however, the effect will be the opposite. Fewer refineries operating will push up prices for refined products. For the refiners that stay in the game and keep their facilities running, the outages at some of their competitors could further inflate margins. Spain’s Repsol, for example, plans on deferring maintenance at its 220,000 barrel-per-day facility on the Mediterranean Sea in order to continue to capitalize on the unusually large margins it is working in.

Refining margins are not always this high, and especially in Europe they are sometimes negative. But for the next few months, the downstream sector will continue to benefit from the oil bust.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News