• 20 hours Iraq Begins To Rebuild Largest Refinery
  • 1 day Canadian Producers Struggle To Find Transport Oil Cargo
  • 1 day Venezuela’s PDVSA Makes $539M Interest Payments On Bonds
  • 1 day China's CNPC Considers Taking Over South Pars Gas Field
  • 1 day BP To Invest $200 Million In Solar
  • 1 day Tesla Opens New Showroom In NYC
  • 1 day Petrobras CEO Hints At New Partner In Oil-Rich Campos Basin
  • 1 day Venezuela Sells Oil Refinery Stake To Cuba
  • 2 days Tesla Is “Headed For A Brick Wall”
  • 2 days Norwegian Pension Fund Set to Divest From Oil Sands and Coal Ventures
  • 2 days IEA: “2018 Might Not Be Quite So Happy For OPEC Producers”
  • 2 days Goldman Bullish On Oil Markets
  • 2 days OPEC Member Nigeria To Issue Africa’s First Sovereign Green Bond
  • 2 days Nigeria To Spend $1B Of Oil Money Fighting Boko Haram
  • 2 days Syria Aims To Begin Offshore Gas Exploration In 2019
  • 2 days Australian Watchdog Blocks BP Fuel Station Acquisition
  • 3 days Colombia Boosts Oil & Gas Investment
  • 3 days Environmentalists Rev Up Anti-Keystone XL Angst Amongst Landowners
  • 3 days Venezuelan Default Swap Bonds At 19.25 Cents On The Dollar
  • 3 days Aramco On The Hunt For IPO Global Coordinators
  • 3 days ADNOC Distribution Jumps 16% At Market Debut In UAE
  • 3 days India Feels the Pinch As Oil Prices Rise
  • 3 days Aramco Announces $40 Billion Investment Program
  • 3 days Top Insurer Axa To Exit Oil Sands
  • 4 days API Reports Huge Crude Draw
  • 4 days Venezuela “Can’t Even Write A Check For $21.5M Dollars.”
  • 4 days EIA Lowers 2018 Oil Demand Growth Estimates By 40,000 Bpd
  • 4 days Trump Set To Open Atlantic Coast To Oil, Gas Drilling
  • 4 days Norway’s Oil And Gas Investment To Drop For Fourth Consecutive Year
  • 4 days Saudis Plan To Hike Gasoline Prices By 80% In January
  • 4 days Exxon To Start Reporting On Climate Change Effect
  • 5 days US Geological Survey To Reevaluate Bakken Oil Reserves
  • 5 days Brazil Cuts Local Content Requirements to Attract Oil Investors
  • 5 days Forties Pipeline Could Remain Shuttered For Weeks
  • 5 days Desjardins Ends Energy Loan Moratorium
  • 5 days ADNOC Distribution IPO Valuation Could Be Lesson For Aramco
  • 5 days Russia May Turn To Cryptocurrencies For Oil Trade
  • 5 days Iraq-Iran Oil Swap Deal To Run For 1 Year
  • 8 days Venezuelan Crude Exports To U.S. Fall To 15-year Lows
  • 8 days Mexico Blames Brazil For Failing Auction

Breaking News:

Iraq Begins To Rebuild Largest Refinery

Alt Text

Oil Investors Are Growing Impatient

U.S. oil investors are growing…

Alt Text

Higher Oil Prices Widen U.S. Trade Deficit

The United States trade deficit…

Oil Refining Capacity Set To Surge, But Can It Boost Oil Prices?

Refinery

A fresh wave of seasonal oil demand is expected to be unleashed when the global refining capacity increases to 101.8 million barrels per day (mb/d) in August, compared to 97.25 mb/d in March, according to data on Thomson Reuters Eikon.

Though the current rally in oil is primarily due to supply outages, the seasonal demand may also increase oil prices.

The expected demand increase of 4.55 mb/d in a matter of six months comes at a time when production is dropping, causing the refineries to compete with each other to grab a portion of the available oil production, which is likely to limit the slide in oil.

Various reports forecast that the global crude refining capacity will witness strong growth in the next five years. China, Southeast Asia, Latin America and the Middle East will lead the refinery growth.
The most conservative report predicts a 9.4 mb/d addition in global capacity by 2020, whereas the most aggressive report expects an addition of 25 to 28 mb/d in the next five years.

However, in the near-term, the Chinese and the Indian refining capacities are increasing. Both nations have increased imports to shore up their strategic oil reserves when oil prices are still below the $50 per barrel mark. In the first quarter of 2016, 50 percent of the global oil demand growth was from China and India.

Though global demand is projected to increase both in 2016 and 2017, the refining capacity is increasing at a faster pace. New refineries are being added to cater to the local demand, which is expected to increase the supply glut of refined gasoline, diesel, jet, and shipping fuel. Related: U.K. Loses 120,000 Oil Jobs In Oil Bust 

Producers of heavy crude grades see refining as an opportunity to increase their profitability by exporting refined products. The new refineries are concentrating on integrating petrochemicals, aromatics and lubricants. This diverse mix offers the companies new marketing products, which are economically beneficial, though the refiners earn lower refining margins due to the global glut. Refineries also add a sense of energy security to these nations.

Currently, the reserve capacity, a difference between available and installed capacity, is tightening and is expected to fall below 500,000 barrels per day, hence, the refiners will have to cut production to match the existing demand, thereby reducing oil demand and pushing prices lower.

"Until new refineries are built, refining activity and, by extension refinery crude demand can basically only go down as facilities either go into unplanned outage or refinery runs are cut to reduce an emerging product glut," said a senior oil trader in Singapore, reports Reuters.

However, due to the various supply outages, about 2.5 mb/d of crude oil production is affected. Hence, the global production has dropped below 95 mb/d, turning the supply glut into a deficit. Refiners are likely to bid prices higher to fulfill their requirement of crude oil, which will limit any downside in crude. Related: L.A. Fights To Become Greenest City In The U.S.

On the other hand, if demand drops and supply is restored, the balance will again shift. The oil markets are watching closely to see if the slowdown in the Chinese growth leads to a drop in Chinese demand.

The last two weeks of Baker Hughes rig count data has shown an increase in the U.S. rig count. Though the increase is nominal, it signals the intentions of U.S. shale oil to return as prices continue to increase.

The next few weeks will be critical for oil prices and will cause a tilt away from the balance, either on the upside or on the downside.

By Rakesh Upadhyay for 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