A glimpse of recovery for distillates
Falling runs and Middle East maintenance will tighten European distillate supply in Q4
After a prolonged glut stocks will soon start to draw. Not crude oil-but European distillates, the market for which will tighten in Q4 as lower refinery runs curb output and outages from facilities in the Middle East reduce its exports.
The fourth quarter usually sees a shortfall of distillates in Europe. But this one will be deeper. European refinery runs are expected to average around 12.3m barrels a day in Q4, down 200,000 b/d from Q3 levels. In Q1 2017 they are expected to fall further, down to 12m b/d, according to Energy Aspects.
Both the 400,000-b/d Yasref refinery on Saudi Arabia's Red Sea coast and the 0.53m-b/d Ras Tanura facility on its Gulf coast are expected to undergo large-scale maintenance in Q4, which will curb exports to Europe. Saudi Arabia's diesel exports to Europe usually increase in Q4 as temperatures fall and domestic demand wanes.
Meanwhile, Europe's distillate demand in Q4 is expected to be around 300,000 b/d higher than at the start of the year, reaching 6.8m b/d, the consultancy says. It means distillate supply into the region will be around 1.2m b/d short of consumption in Q4. That's up from a 0.96m b/d shortfall in Q1 this year. Next year, the shortfall is expected to widen further, reaching almost 1.4m b/d, against consumption of 6.87m b/d.
This means the region will draw on stocks to make up the shortfall. Inventories in the Amsterdam, Rotterdam, Antwerp (ARA) trading hub have already started to fall. In mid-September distillate inventories in the hub stood at 24m barrels, or around 13% less than a year earlier, according to investment bank BNP Paribas. Stocks of jet fuel in ARA were around a quarter lower than year-earlier levels by mid-September, at 4.9m barrels.