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Expect record global refinery throughput in Q3

Runs may surge but they won’t match demand growth

Global refinery throughput will reach a record level in Q3-but the volume still won't be enough to satisfy a rising market. Stocks will fall slowly to compensate, which should in turn tighten matters.

Refinery throughput will reach 80.6m barrels a day, forecasts the International Energy Agency (IEA), peaking at 81.1m b/d in July.

Throughput in rich nations will rise by 1.1m b/d from Q2 levels, reaching 38.3m b/d. Non-OECD throughput will also rise by the same amount, the IEA said, accounting for the remaining 42.3m b/d.

But the overall numbers hide a detail that should provide some bullish impetus. The 2.2m b/d rise from Q2's global throughput is just 0.6m b/d higher than a year earlier-and, as such, will be just half of the expected 1.2m b/d of demand growth for the quarter. The inventory that has been building since mid-2015 will start to retreat.

Global refinery throughput is usually strongest in the third quarter because facilities process more crude to meet summer driving demand and build stocks ahead of autumn maintenance and the winter heating season.

In Q4 runs will then fall back to below 80m b/d as seasonal refinery maintenance ramps up from September. Global refinery maintenance is expected to peak in October at 5.35m b/d, according to Energy Aspects, a consultancy, with an expected global crude distillation unit (CDU) outage of over 1.2m b/d in that month. In September turnarounds are expected to be 4.33m b/d with a global CDU outage of just over 1m b/d.

The sheer size of the stock overhang will put pressure on refining margins-not least the lingering momentum that means they continue to build. Oil-product markets have been in oversupply since late 2014 as refinery runs increased more than demand for refined products. OECD oil stocks built by 5.7m barrels in June, reaching a record 3.09bn barrels.

Usually, stocks fall by about 1m barrels at that time of year. The IEA said refiners may be "in for a margin roller coaster over the next few months".

While margins have fallen in all major refining regions, European operators are particularly feeling the pressure. In July, average Brent cracking margins in Europe were around $3/b, down from almost $5/b in June, according to the IEA. Worse is coming. Energy Aspects forecasts northwest European cracking margins will average just $0.50/b in Q4.

Profits remain healthiest for refiners in the US. WTI cracking margins for midcontinent refiners averaged just under $10/b in July, down from around $14.40/b in June.

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