IEA: European Refiners Aren't Taking Advantage Of Higher Margins

Profitability among Europe's hydroskimming refineries is now the highest on record, with the exception of the time immediately following Russia's invasion of Ukraine.

But even with profitability at a near all-time high, utilization in European OECD refiners averaged just 81% in June-530,000 bpd less than the same month last year and making European refining the "epicentre of the operational underperformance," the IEA said in its latest Oil Market Report (OMR).

The bottom line, according to the IEA, is that refiners are incapable of taking advantage of the recent price hikes and better margins.

As for the outlook for European refining, that's "challenging". Refining issues will likely be rampant in other parts of the world as well, the IEA said. For Europe, refinery runs in the third quarter are expected to be 600,000 bpd under Q3 last year. OECD Americas countries will see refinery runs 250,000 bpd less y/y.

Refinery runs have been constrained due to extreme temperatures in Europe, the United States, and China, which creates technical problems with the necessary step of cooling air and water. The IEA also cited sanctions as part of refinery hurdles, particularly for refineries that in the past received crude and feedstocks from the Druzhba pipeline. And because all grades are not equal, refineries that rely on heavier grades-of which is now in tight supply-are not running at full capacity, while refineries that use lighter grades are maxed out to compensate. It also means that refiners are unable to fully utilize their upgrading capacity.

Europe and the United States have also been hit with unplanned refinery outages, such as Exxon's Baton Rouge refinery, Valero's McKee refinery in Texas, Shell's Pernis refinery in Rotterdam, BP's Indiana refinery, and TotalEnergies' Port Arthur refinery in Texas to name just a few.

By Julianne Geiger for Oilprice.com

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