September 8, 2015 / 3:03 PM / 4 years ago

European oil refiners' good times are not over yet

* Refining margins to remain strong into 2016 -banks

* Maintenance, strong demand, low crude prices to support

* Q2 2015 refining margins strongest on record

By Ron Bousso

LONDON, Sept 8 (Reuters) - A rare run of strong European refining profits will extend to the end of the year and beyond due to extensive plant maintenance, strong fuel demand and low crude oil prices, beating earlier expectations, analysts said.

Integrated oil companies such as Royal Dutch Shell and Total, Europe’s largest refiner, have seen refining offset heavy losses from oil production as prices more than halved since last June to around $50 a barrel.

Benchmark second quarter European refining margins — the profit from processing crude oil and selling refined products such as gasoline and diesel — were the strongest for that period since Reuters records started in 1997 at $9.35 a barrel.

And 2015 margins are shaping up to be the strongest since 2008 as the price drop sparked demand around the world.

“European refiners are enjoying a rare period of high margins. We think we are past the peak but that margins are likely to stabilise at a higher level than expected by the market over the next couple of years,” analysts at UBS said in a note.

Seasonal refinery maintenance around the world is expected to average 5 million barrels per day (bpd) in September and October, around 7 percent of global refining capacity, limiting oil product supplies, according to Barclays.

“This together with seasonally higher demand for heating oil in colder weather and lower crude losses at low oil prices will in our view support refining margins for the rest of this year.”

Although Europe’s maintenance schedule this autumn is expected to be relatively low, a high number of diesel producing units totalling some 300,000 bpd is planned to go down for turnaround, a fact which has supported refining margins.

Barcalys rated Shell and Total as “overweight”.

Independent refiners such as Turkey’s Tupras, Finland’s Neste, Greece’s Hellenic Petroleum and Motor Oil are also set to benefit, said UBS, which rated them all as “buy”.


In the longer term, margins are likely to stabilise at higher levels than previously expected due to faster than expected demand and lower oil prices, UBS said.

Several refining projects that have been cancelled or delayed in recent months such as Shell and Qatar Petroleum’s Karaana petrochemicals project, also mean that less than expected new refining capacity is set to come on line in the coming years.

Between 2015 and 2017, 1.2 million bpd of new refining capacity is expected to come on line around the world, mostly in the Middle East and Asia, according to UBS.

On the other hand, global demand is expected to grow by 1.4 million bpd over the same period, the bank said.

UBS forecasts the European refining margin to average $5 a barrel between 2015-2017 compared with $3.3 a barrel between 2010 and 2014.

Europe’s structural refining overcapacity that plagued the sector before the current “golden age” is set to nevertheless weigh from 2018 onwards, it said.

Editing by William Hardy

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