Global oil refiners continue to cut fuel production as they face months of lacklustre demand and an oversupply stemming from the impact of coronavirus. Analysts estimate that refiners slash output by about 35% during the spring when lockdown measures prevented people from travelling. Refiners gradually increased output as restrictions eased but reduced production again in the last several weeks responding to a sustained lack of demand and inventory glut.
In the US, fuel demand has dropped 13% year-on-year, data from the US Energy Information Administration (EIA) showed. Heating oil and diesel consumption typically rise during the summer. However, refiners have no incentives to raise production as inventories reach a record 179 million barrels. Analysts estimated that US refinery output remained 20% below pre-pandemic levels.
Chinese refiners are cutting production as export demand from the neighbouring Asian markets weakened due to the virus’s effect. Analysts said that Chinese refineries are operating at reduced rates in September as they grapple with high fuel inventories. PetroChina reportedly cuts runs by 5-10% this month, compared to August. Utilization rates at Chinese state refiners averaged 78.6% by end-August, compared to 82.2% a month earlier.
Japanese refiners cut utilization rate to 65.9% in the week ended September 12, compared to 72% a month earlier. South Korea’s SK Innovation cut processing rate to 80% in September-October and is considering reducing crude intake further. Fuel production in Asia could fall further during the maintenance season in September through November. At the same time, these refiners are facing higher prices for Middle Eastern crudes.
