Distillate markets seriously overstocked
Markets worldwide are facing a glut of distillates such as diesel and jet fuel, as demand on these products has suffered most from the global downturn. Refiners are trying to shift focus to petrol, but global crude demand will remain under pressure until distillate oversupply is absorbed.
Global distillate markets remain heavily oversupplied, says Reuters adding that refiners’ margins are at multi-decade lows despite their efforts to restrain crude processing and switch to maximising petrol production. the production of distillates, including diesel, jet fuel, gas oil and heating oil, is now outstripping consumption, largely due to the downturn in manufacturing and aviation. Bloated inventories are expected to restrain refiners’ crude processing and buying at least for the next several months. Weak demand for crude is depreciating oil major’s efforts to rebalance the oil market and push prices higher.
In the United States, refiners have restrained their crude processing limiting throughput to 13,5 million bpd last week, which is almost 19% below the five-year average. Besides, American refiners have adjusted their equipment to maximise the production of petrol at the expense of distillates. Their current petrol-distillate ratio amounts to 1,7:1, while a year ago it was at 1,4:1. Nonetheless, US distillate inventories are stuck at 179 million barrels, which is by 22% above the five-year seasonal average and close to the highest level since the early 1980s.
Distillate stocks are well above normal not only in the US but also all around the world. In Northwest Europe, margins for transforming Brent crude into gas oil have dropped to just $3 per barrel. By comparison, they were at $16 at the beginning of the year. Excessive distillate inventories are meant to limit upward moves in crude prices until there is a clear signal they are being absorbed, says Reuters.
Meanwhile, Russia’s Minister of Energy Alexander Novak expects oil demand to recover fully by the second quarter of 2021. According to the minister, even now the oil market is in a supply deficit of 1,5-2 million bpd. “Reserves accumulated in the second quarter are gradually shrinking, and we see that July and August were the first two months when stocks declined gradually. The reduction roughly amounted to 45 mln barrels in August and 34 [mln barrels] in July,” said Novak in a TV interview.
His Saudi counterpart Abdulaziz bin Salman Al Saud is not so optimistic about the future of the oil market. At the OPEC+ meeting on 17 September, Abdulaziz criticised OPEC members lagging with the cuts and warned that full compliance with the restrictions was “not a charity”. In August, the deal’s compliance rate reached 101%. The target figure under the current OPEC+ agreement on output cuts amounts to 7,7 million bpd.