* Competition from U.S. and Middle East imports will rise
* Weaker outlook may impact investment in sector
* More light sweet crude will limit volumes of lucrative
* Gasoline more resilient due to refinery closures
By Simon Falush and Claire Milhench
LONDON, Nov 16 European oil refiners can expect
margins to come back down to earth in 2013 as global capacity
returns, after a rollercoaster this year that saw them soar in
the second and third quarters on low oil products stocks and
The persistent strength of European refining margins since
the middle of the year has surprised traders and refiners, who
had grown used to very tough conditions.
Many refiners were unable to take advantage of the unusually
strong margins as they had already committed to lengthy
maintenance periods, while others, particularly in the
Mediterranean, had idled their plants. This merely extended the
period of strong margins.
But some analysts and investors believe refiners hoping the
good times will last will be disappointed, with around 1 million
barrels per day of slack refining capacity in Europe according
BP and Royal Dutch Shell said at the start
of November that they were cautious on the outlook for their oil
refining businesses, saying a third-quarter surge in refining
margins that boosted earnings would be short-lived.
"The last six months has been very healthy, and I don't
think this will be seen as the baseline," said David Wech, an
energy analyst at JBC Energy in Vienna.
"There is surely room for disappointment for those who have
recently bought refineries," he added, referring to purchases of
three of the five ex-Petroplus refineries by trading houses
earlier this year.
Ian Taylor, the chief executive of Vitol, which bought
Petroplus's Cressier plant with Atlas, pointed to downbeat
expectations for next year, limiting potential investment.
"It's one thing that worries me particularly in the
downstream sector, we need people to want to be investing and
want to be in these markets," he told a conference on Tuesday.
"But one or two others are saying, 'Get out, don't touch it'
and that has some big consequences, particularly for Europe."
JBC Energy predicts aggregate refining margins on Brent
crude oil at around $6 per barrel in 2013, marginally down from
average 2012 levels. This hides a wide degree of differentiation
for individual refiners and between different fuel types.
This year followed a period of poor margins which forced
independent refining company Petroplus into bankruptcy and led
to the closure of its Coryton plant in Britain. This boosted
gasoline margins, as Coryton had been a big gasoline producer.
Diesel margins also rocketed after accidents at U.S. and
Venezuelan refineries over the summer, which reduced product
flows to Europe just ahead of seasonal maintenance and
considerably tightened the market.
The differential for barges of diesel in northwest Europe
reached over $60 a barrel in early November, and were at higher
levels in September and October than the corresponding months in
every year since 2008 .
The margin, or crack, for refining gasoline soared to almost
$25 a barrel in early September, its highest since
2008, and remained in double digits into October, before falling
off with the end of the U.S. summer driving season.
But cracks for diesel and heating oil took up the slack, and
overall refining margins for the last 15 days stand at $5.64
according to Reuters' data, compared with $3.38 in March
Traders said too much capacity had come out of the market at
a time when refining runs were low. Cautious refiners were
unable to believe the good times would last, and worried that
increasing runs would simply kill the goose that laid the golden
High crude feedstock prices in the first half of 2012 also
meant refiners could justify keeping product prices high. And
when crude oil prices came off, refiners were slower to reflect
this in their product prices.
"I don't think this will necessarily continue in 2013," said
Yu-Dee Chang, portfolio manager for the Energy Sector Hybrid
Approach at Ace Investment Strategies. "Margins won't be as
high, as crude prices have come off and people are expecting to
see lower product costs."
More light, sweet crude supplies are also becoming available
relative to heavy crudes, from both shale oil in the United
States and from capacity coming back in Libya.
This will be lower yielding for lucrative diesel, making
life more difficult for refiners, said Jason Lejonvarn, a
commodities strategist at Hermes Fund.
"The main message is that we are facing imbalances. You get
more light crude and it makes it difficult to produce middle
distillates," he told a conference in Geneva, Global Energy,
European refiners that benefited from tight diesel supplies
in 2012 will see import volumes recovering in 2013, said Olivier
Jakob, an oil analyst at Petromatrix.
The damaged Motiva refinery unit at Port Arthur, Texas is
expected back up at the end of the year, and more capacity is
coming online in the United Arab Emirates and Saudi Arabia.
"There should be a new export push of diesel to Europe in
the next six months that will put European refineries back under
pressure," he said.
However, while margins may be headed lower, they are
unlikely to crash to negative values like they did last winter,
particularly for gasoline. "In Europe, we see less gasoline
production because a lot of refineries have closed this year and
more will close next year," a trader said.
In Italy several refineries have already closed, or will
close temporarily next year. ENI's Gela refinery in
Sicily has been partially closed since April, whilst API's
80,000 bpd Falconara Marittima will close for a year from
January and Total-ERG is closing its Rome refinery.