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In Europe refiners have cut crude runs due to weak margins while diesel demand has surged in US markets in first half of 2013 at an annual rate of 2% and German diesel consumption is also moving up at a fast pace. Wit..

19 Sep 2013

LONDON (Commodity Online): Oil industry is facing severe pressure on sharp fall in refining margins, according to a new analysis by Bank of America Merill Lynch (BofAML). Refining margins are not at all helathy and brent cracking marings are low levels of $4 per barrel since July.

In Europe refiners have cut crude runs due to weak margins while diesel demand has surged in US markets in first half of 2013 at an annual rate of 2% and German diesel consumption is also moving up at a fast pace. With many of the European refineries being shut down due to low margins, more Asian diesel could flow into the region, BofAML report said.

Russia has 800-900 thousand b/d scheduled offline in this fall. On top of that, Asian refiners are operating at lower rates, with South Korea, Singapore and Thailand all experiencing run cuts on weak margins. Unless margins move back to more healthy levels, refineries are unlikely to return strongly. Only US refinery runs are likely to stay more robust given the continued discounts of LLS and WTI to Brent, BofAML report said.

Crude oil market will remain balanced due to diplomatic progress in Syria and imminent rebound in Libyan exports on account of increased light sweet crude oil production in Libya apart from improved output in Saudi Arabia and Iraq. Decline in Saudi consumption should make the market balanced.

Meanwhile distillate margins are significantly more supported, with gasoil cracks on Brent trading above $15/bbl and also finding support on the forward curve Such strong diesel margins have refiners focus firmly on mid distillate production, especially in the US where output has reached record highs in recent months. But despite high production, diesel inventories remain tight. In the Atlantic Basin, stocks remain at stubbornly low ahead of the winter heating season and a heavy refinery maintenance season means supplies are unlikely to build even close to healthy levels ahead of the winter( Europe in particular needs to urgently boost its diesel supplies via higher imports, BofAML report said.

Refinery closures in Europe have been necessitated by strong competition from shale gas in US, competition in West Africa frm gasoline exports by US Gulf coast refineries. With Europe facing a diesel deficit surplus in Asian region is likely to move into Europe.

In UAE, Juabil refinery will add 400,000 barrels per day of diesel flows into the Pacific basin and 600,000 by 2015.


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