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3 Reasons To Be Bearish On Oil

3 Reasons To Be Bearish On Oil

There are three very good…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Refinery Closures Continue Amid Oil Demand Slump

Refiners are shutting down permanently or converging oil refineries as the demand crash from the pandemic continues to crush refining margins.

Several refiners and oil majors have recently announced permanent closures in the United States and Asia, while analysts believe that some high-cost refineries in Europe could also be shut down over the next few years as margins for processing crude into fuels are expected to remain depressed.

Refiners face the adapt-or-die scenario in the wake of the pandemic, and closures and consolidation will be the two major themes in the downstream going forward, analysts have said.

Some refiners have already announced closures. Last week, Phillips 66 said it plans to shut down the Rodeo Carbon Plant and Santa Maria refining facility in Arroyo Grande, California, in 2023. Phillips 66 plans to reconfigure its San Francisco Refinery in Rodeo, California, to produce renewable fuels.

Marathon Petroleum is idling the Gallup and Martinez refineries indefinitely and is evaluating the strategic repositioning of Martinez to a renewable diesel facility.

In Asia, Shell plans to transform its Tabangao oil refinery in the Philippines into a full import terminal to optimize its asset portfolio.

“Refining margins, which saw a steep decline earlier in the year, have gone down further and may remain depressed in the medium term,” Shell’s Philippine unit said in a statement last week.

Margins are expected to remain depressed even after this year, analysts say.

Globally, refiners may need to shut down as much as 4 million bpd of refining capacity over the next few years in order to support a rebound in refining margins, Kostantsa Rangelova, head of downstream at JBC Energy, told Reuters.

According to Wood Mackenzie, nearly 10 percent of high-cost refineries in Europe, or 1.4 million bpd of capacity, is in serious threat of closure in Europe alone over the next three years, Alan Gelder, Head of Downstream Oil, and Gerrit Venter, Corporate Analysis, said last month.

The consultancy expects a global composite gross refining margin of US$1.40 a barrel for 2020, down from U$3.70/b last year and the lowest this century. The margin will recover to US$2 to US$3/b through 2025, but it still will be 20 percent lower than WoodMac’s pre-crisis forecast.  

By Tsvetana Paraskova for Oilprice.com

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