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Lower Oil Prices Benefit European Refiners

tank cars

European refiners have seen their energy costs drop alongside the fall in oil prices, which has boosted their competitive position compared to North and South America, but Europe is still lagging in lowering energy costs compared to refineries on the other side of the Atlantic.

Before the oil price crash of 2014, refineries in Europe had much higher costs than those in the Americas, as high oil prices usually widen refinery costs differences between regions, Stephen Wright, vice president at Solomon Associates, said at the World Refining Association conference in Athens this week.

“High crude price is a big disadvantage” for European refiners, Wright said at the conference, as carried by Platts.

Nevertheless, energy costs are still a huge part of Europe’s refinery costs—at some 50 percent of refinery costs, compared to 28 percent in North American and South American refineries. Europe has been pushing utilization rates up and “that drives up energy usage,” Platts quoted Wright as saying.

However, while energy costs may be low for U.S. refiners, they face high labor costs and much higher maintenance costs. In terms of labor costs, Southeast Asia has an advantage over the other regions. In addition, lower labor costs in central and southern Europe, compared to western and northwestern Europe, have resulted in the trend of “best refineries in Europe moving from western to central and southern Europe,” according to Wright.

Related: Oil Prices Nosedive On Bearish IEA Report

Most recently, European refiners benefited from the refinery outages in the U.S. in the aftermath of Hurricane Harvey.

U.S. refiners, on the other hand—specifically independent refiners—are set to benefit from the rising Brent/WTI spread, according to Barclays, which sees the spread averaging US$4 a barrel in 2018 and rising to around US$6 by 2020 and 2021. PBF Energy and CVR Refining are poised to boost profits from the rising spread, while Phillips 66’s diversified business may be a drag on its refinery segment, Barclays says.

By Tsvetana Paraskova for Oilprice.com

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