Decreasing stocks, especially of distillates, and low refining
availability elsewhere in the world have improved prospects for European
refiners, delegates told a refining conference in Brussels Thursday.

“We don’t start the autumn with high inventory levels,” said Matti
Lehmus, executive vice president of oil products at Neste.

“We are no longer carrying big stocks of distillates,” said Joe Ashman,
Greenergy’s head of trading strategy.

While the build up of product stocks resulted in “a downwards adjustment
of margins” in 2016, this year there has been a rising trend, said Richard de
Caux, Head of refining analysis at BP.

Margins have been boosted by low crude prices and “this bodes well for
European refiners in the next few years,” said de Caux.

Furthermore, lower refining availability in Latin America and Africa, as
national oil companies have put in less investment due to lower oil prices,
“had also resulted in higher utilization elsewhere,” de Caux added.

While he estimated average global utilization at 83% this year, it has
risen to 85% outside Latin America and Africa, levels close to “the golden age
of refining,” between 2004-2008. “Europe especially has gained from this,”
said de Caux.

Lower crude prices and improving crude quality have also supported simple
refining margins as the narrow light-heavy differential “means strong fuel oil
crack”, said de Caux.

Hence “low complex refineries are faring far better than they were prior
to this big shift in the crude market,” de Caux said. As a result “there is a
lack of closure announcements,” he added.

“I don’t think we’ll see too many closures,” agreed Saras’ general
manager Dario Scaffardi.

Margins have been favorable for both simple and complex refiners, said de
Caux. “Everyone is doing well,” he added.

Meanwhile the big question remains the future of fuel oil in view of the
IMO regulations for lower sulfur bunker fuel from 2020. While fuel oil cracks
have been particularly strong this year, further out could see a big shift in
prices. But there are other factors that could impact its fortunes, said
delegates.

But the distillate market is expected to remain strong, and even if the
passenger car segment decreases there will be growth in the aviation sector,
commercial traffic and the bunker market, said Lehmus.

“A year ago we looked at 2017 and expected gasoline growth, the positive
side has been the distillate side,” he added.

–Elza Turner, elza.turner@spglobal.com

–Edited by Jeremy Lovell, jeremy.lovell@spglobal.com

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