Refiners cut oil use, show world has enough for now

By Melissa Akin and Janet McGurty - Analysis

LONDON/NEW YORK (Reuters) - Oil around $90 a barrel for three straight months has led refiners around the globe to process less of it, offering further proof the world's immediate needs for crude are amply covered.

A Reuters estimate shows at least 400,000 barrels per day (bpd) is off line as refiners close units that process crude -- allowing oil inventories to pile up as refined product prices lag crude's rally.

The refinery "run cuts" reinforce the view there is plenty of crude available for now, although consumer countries threatened with recession, led by the United States, are urging OPEC ministers who are meeting on February 1 to decide to pump more.

"It's all part of the fear factor, that with a recession coming there is something wrong with demand," an industry observer said.

The Reuters estimate is based on a tally of reported production losses and, in some cases, estimates of a 10 percent reduction in average crude runs where no indications are available on the scale of cut.

Normally run cuts are a short-term measure to revive profit margins during periods of low fuel demand between the peak motor fuel season of summer and the peak heating fuel season in winter. As fuel supply decreases, prices recover against crude.

But this year run cuts have come more quickly and are more widespread, oil traders and analysts said.

ASIA DEMAND WEAK

Run cuts are most widely reported in Asia, especially in Japan, the world's third largest oil consumer nation, where around 100,000 bpd were cut in January.

Japan's largest refiner Nippon Oil (5001.T) was first to apply the knife, saying consumer fuel demand would weaken and would not justify running at planned rates. It plans to scale back runs by 63,000 bpd next month, when Japanese refiners are likely to cut a total of 78,000 bpd.

Europe's oil needs are also expected to fall in coming weeks and months as refiners head into scheduled maintenance.

In northwest Europe, where trade and industry sources are reporting run cuts at three refineries, for a likely reduction of about 50,000 bpd, planned maintenance is likely to shut an additional 200,000 bpd of capacity in February, according to an estimate by Energy Market Consultants.

But by virtue of its refiners' focus on production of high-value middle distillate fuels such as diesel, which still command a notional premium of $15 to crude oil, Europe has been comparatively well insulated from weak global margins.

In a sign that one oil major sees European margins recovering within weeks, ConocoPhillips (COP.N) has purchased a cargo of crude oil for February delivery to its 275,000 barrels per day Wilhelmshaven refinery in northern Germany, which trimmed refinery runs in February.

A few U.S. refiners have also announced run cuts, although many are reluctant to be thought to be deliberately boosting product prices by restricting supply.