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European refining margins continue to slide

Profits for processing crude into refined products are under pressure, especially in Europe

REFINING margins continue to tumble as pressure mounts from higher crude prices and persistently bloated stocks.

Brent cracking margins in northwest Europe slid to just $2.16 per barrel for the week ending 13 May, data published by BNP Paribas show. That's the lowest the margin for processing the European benchmark crude into products has been since 18 March, and compares to an average of around $3.14/b in April, data from the investment bank show.

Rising crude prices have helped to pressurise margins, as feedstock costs for refiners increase. Front-month Brent futures were trading just under $48/b in mid-May, up from around $34/b at the beginning of February.

Unlike last year, US gasoline demand won't bolster margins for European refiners - who export most of the road fuel produced there across the Atlantic - even as we enter the peak summer demand period.

Volatile swings: Brent cracking margins ($/b)

Week beginning

Margins ($/b)

13 May 2.16
06 May 2.86
29 April 3.49
22 April 2.77
15 April 2.69
08 April 3.35
25 March 3.08
18 March 2.15
11 March 0.95
04 March 0.35
26 February 1.13
19 February 2.14
12 February 2.87
05 February 3
29 January 3.57
22 January 4.68
15 January 4.51
08 January 3.83

Source: BNP Paribas Capital Markets

This is because stocks of the road fuel remain high.

US gasoline stocks surged to almost 259m barrels in the week ending 12 February, Energy Information Administration data show. That's almost 16m barrels higher than a year earlier. US gasoline stocks have since begun to draw, falling to 240.6m barrels for the week ending 6 May. However, this is still almost 13m barrels higher than a year earlier.

In both the US Gulf Coast and New York Harbor margins also fell, as did profits in Singapore. Cracking margins in the Mediterranean increased slightly, but it remains the weakest region profit-wise for processing crude into products.

London-based consultancy Energy Aspects expects that margins in the Mediterranean will fall into negative territory - meaning refiners would pump out products at a loss - by Q4 of this year. That's down from average Urals hydrocracking margins of around $2.75 in Q2 and $5.54/b in Q4 of last year.

Refiners have already started to reduce crude throughput levels - the quantity of crude processed - as their profits have plummeted.

Regional cracking margins ($/b) NW Europe (Brent) Mediterranean (Es Sider) US Gulf Coast (LLS) New York (Brent) Singapore (Dubai)
Week ending 13 May 2.16 2.05 4.34 8.07 2.66
Week-on-week change -0.69 0.03 -0.68 -0.61 -0.01

Source: BNP Paribas Capital Markets

OECD Europe's refinery throughput level has also started to fall as margins weaken. The region's throughput fell by 0.5m b/d in March, down to 11.4m b/d, International Energy Agency (IEA) data show. This is over 0.4m b/d below the year-earlier level, and is the lowest since June 2014, according to IEA data.

Throughput in Asia also fell by 0.5m b/d in March, IEA data show, down to 6.8m b/d.

OECD Americas throughput increased by around 300,000 b/d in March, reaching 19m b/d, IEA data show. Levels in the Middle East were 200,000 b/d higher in February, reaching 6.9m b/d.

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