July 8, 2014 [OPIS] - Total, ENI and Royal Dutch Shell are among those looking for opportunities to cut their downstream exposure to Europe, but if given the choice, it seems fair to say that they would rather sell than close them, according to a report issued by Credit Suisse on Monday.
There appears to be still interest from trading and investment firms such as Varo Energy and Klesch that may delay the pace of closures, the bank said. In light of this year’s backdrop in Europe, the bank expressed surprise that the European market has not seen more refinery closures so far.
The Northwest European refining margin remains firm, extending its “artificial rebound,” Credit Suisse said.
The CS NWE Indicator averaged $5.6/bbl over the past week, up by $0.6/bbl over the prior one week period, leaving the margin at $5.7/bbl in the third quarter to date versus $4.6/bbl for the same period last year. The bank’s forecast for the third quarter is $5.2/bbl.
The near term outlook for European refining margin remains cautiously supportive. Fading risk of supply disruption from southern Iraq and the potential for Libyan terminals (Es Sider, Ras Lanuf) to reopen pushed crude prices lower and helped boost refining margins, with a lag effect.
Margins have now been recovering over the past several weeks, but mostly driven by run cuts over this timeframe, and thus, should remain capped as there is slack to come back on in response to any resurgence.
Generally, a large portion of the margin recovery of late has been crude-led rather than real product exuberance, and that is not good news for crude differentials at present.
Indeed, it never is a good sign when the main product – diesel – that supports refinery runs goes through carry levels, then continues to fall and stabilizes at low levels following significant run cuts.
To add to the dilemma, the loading program for Urals is looking tight for August versus last year, which should impact European refining margins.
