LONDON – European oil refiners can expect margins to come back down to earth in 2013 as global capacity returns, after a rollercoaster this year that saw them soar in the second and third quarters on low oil products stocks and plant closures. The persistent strength of European refining margins since the middle of the year has surprised traders and refiners, who had grown used to very tough conditions. Many refiners were unable to take advantage of the unusually strong margins as they had already committed to lengthy maintenance periods, while others, particularly in the Mediterranean, had idled their plants. This merely extended the period of strong margins. But some analysts and investors believe refiners hoping the good times will last will be disappointed, with around 1 million barrels per day of slack refining capacity in Europe according to Bernstein. BP and Royal Dutch Shell said at the start of November that they were cautious on the outlook for their oil refining businesses, saying a third-quarter surge in refining margins that boosted earnings would be short-lived. “The last six months has been very healthy, and I don't think this will be seen as the baseline,” said David Wech, an energy analyst at JBC Energy in Vienna. “There is surely room for disappointment for those who have recently bought refineries,” he added, referring to purchases of three of the five ex-Petroplus refineries by trading houses earlier this year. Ian Taylor, the chief executive of Vitol, which bought Petroplus's Cressier plant with Atlas, pointed to downbeat expectations for next year, limiting potential investment. “It's one thing that worries me particularly in the downstream sector, we need people to want to be investing and want to be in these markets,” he told a conference Tuesday. “But one or two others are saying, ‘Get out, don't touch it' and that has some big consequences, particularly for Europe.” JBC Energy predicts aggregate refining margins on Brent crude oil at around $6 per barrel in 2013, marginally down from average 2012 levels. This hides a wide degree of differentiation for individual refiners and between different fuel types. This year followed a period of poor margins which forced independent refining company Petroplus into bankruptcy and led to the closure of its Coryton plant in Britain. This boosted gasoline margins, as Coryton had been a big gasoline producer. Diesel margins also rocketed after accidents at US and Venezuelan refineries over the summer, which reduced product flows to Europe just ahead of seasonal maintenance and considerably tightened the market. The differential for barges of diesel in northwest Europe reached over $60 a barrel in early November, and were at higher levels in September and October than the corresponding months in every year since 2008 . The margin, or crack, for refining gasoline soared to almost $25 a barrel in early September, its highest since 2008, and remained in double digits into October, before falling off with the end of the US summer driving season. But cracks for diesel and heating oil took up the slack, and overall refining margins for the last 15 days stand at $5.64 according to Reuters' data, compared with $3.38 in March . Traders said too much capacity had come out of the market at a time when refining runs were low. Cautious refiners were unable to believe the good times would last, and worried that increasing runs would simply kill the goose that laid the golden egg. High crude feedstock prices in the first half of 2012 also meant refiners could justify keeping product prices high. And when crude oil prices came off, refiners were slower to reflect this in their product prices. “I don't think this will necessarily continue in 2013,” said Yu-Dee Chang, portfolio manager for the Energy Sector Hybrid Approach at Ace Investment Strategies. “Margins won't be as high, as crude prices have come off and people are expecting to see lower product costs.” More light, sweet crude supplies are also becoming available relative to heavy crudes, from both shale oil in the US and from capacity coming back in Libya. — Reuters
