Oil Refineries
Pre-Winter Market Slump
January 2020
During 2020-2021, the refining industry will transition its downstream units towards higher levels of complexity and ramp up activity as it conforms to the International Maritime Organisation (IMO) 2020 regulation for refiners to reduce sulphur in fuel from 3.5% to 0.5%.

The regulation regulation aims to reduce the amount of sulphur oxide emissions which is expected to deliver major health and environmental benefits, 

The 180kbpd-Zeeland refinery is one of many European plants that are expanding its hydrocracking units to boost production of low sulphur diesel.

AME's US 5-3-2 crack spread vs Brent has averaged US$9.22/bbl so far this month, down 18% from November's average of US$11.28/bbl and down 42% from July's average of US$15.89/bbl driven by decreased demand for motor fuels during the pre-winter months. RBOB (Reformulated Blendstock for Oxygenate Blending) gasoline prices continue their resurgence over the fourth quarter (Oct-Dec), reaching US$93.19/bbl in October from US$86.48/bbl in September, well above the July average price of US$79.95.3/bbl. US diesel fuel prices increased marginally to US$86.73/bbl in October compared to US$83.87/bbl in September.

According to the International Energy Agency (IEA), global refining throughput in Q4 2019 is forecast to increase 0.7Mbpd year on year (y-o-y), while Q3 2019 accounted for a 0.4Mbpd y-o-y decline. The downstream sector saw a general decline in activity year on year except for China and Middle East. China’s crude oil throughput in October rose 9.2% from a year earlier to 57.8 million tonnes (Mt) or 13.62 million barrels per day (Mbpd) - the second highest on record. Following the completion of plant maintenance last quarter China has ramped up output to maximize petrochemical yields ahead of the Christmas manufacturing season.

In addition, the launch of two large-scale refineries by privately owned Hengli Petrochemical and Zhejiang Petrochemical, and an expansion start-up at a PetroChina refinery also pushed crude runs higher in Q4 2019. Faced with a slowing economy and tepid demand for refined oil products, the crude throughput increase will necessitate refiners to boost exports next quarter. In the first 10 months of 2019, crude output climbed 1.1% from a year ago to 159.25Mt.

AME expects significant demand growth for refined products to come from Brazil, India and China through 2020, as opposed to expected further demand decline in Japan. Jet fuel and petrochemical feedstocks will continue to drive the increased demand in China.
In the US, refining throughput fell 0.66Mbpd y-o-y in October. At 15.75Mbpd, runs were the lowest since September 2017, which was affected by Hurricane Harvey. Phillips 66 plans to run the 11 refineries it operates in the mid-90% range of their combined 2.17Mbpd capacity through Q4 2019. US refineries are already transitioning towards low-sulphur marine fuels since gasoline outputs, may be blended with fuel oil to meet IMO 2020 regulations.