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Global refining production may start to rebound in June, but as oil producing countries cut production much faster than expected, raising crude oil prices may squeeze refiners’ profit margins.
The new crown epidemic has put billions of people in a blockade and reduced fuel demand by 30%, allowing refiners to curb output globally. The collapse in crude oil prices prompted OPEC and its allies to reach an agreement to cut production by 9.7 million barrels per day, while other countries have also cut production.
“If the crude oil supply adjusts the situation of excess supply faster than expected, it will support the crude oil price and weaken the refinery profit margin, which will result in the refinery processing volume lower than expected.” IEA pointed out in the oil market monthly report.
Several OPEC countries, including Saudi Arabia, said recently that they would increase production and reduce production compared with their original commitments. U.S. and Canadian producers have cut production by 1.7 million barrels per day, faster than expected.
Tight supply has had an impact on refining margins in the US and Europe. The U.S. diesel profit margin is currently less than $11 per barrel, the lowest seasonally in the past 10 years; the European Diesel profit margin is less than $5 per barrel, the lowest since mid-2009.