Global Refining: UBS Evidence Lab inside. Refining project tracker #29: A perfect storm

Research evidence excerpt

Global Refining: UBS Evidence Lab inside. Refining project tracker #29: A perfect storm

Global Refining UBS Research

Pivotal Questions on the market

1. How much of the global refining capacity is currently offline?

Per kpler data global offline refining capacity reached ~12Mb/d (~12% of global total)

in June and an improvement to ~9Mb/d was expected in July. The estimate was based on

the assumption of the gradually recovering flows through the Strait of Hormuz,

relaxation of export restrictions in China and a stable environment in Russia. However

the landscape changed dramatically already in the first week of July as MENA tensions

re-intensified, hits at the Russian refineries increased and 650kb/d Dangote reportedly

had an outage as of mid-July leading to its runs decreasing to ~350-400kb/d. The offline

capacity for July, we therefore estimate close to June level, from which ~3/4 are

attributable to the outages in Middle East, Russia and still lower runs in China vs ~1/4

related to planned maintenance. While the scope of affected capacity in our view

remains close m/m, European composite refining margins over July rallied by ~$15/bbl to

the new record achieved last week at >$40/bbl. We see this as explained by Russia

banning diesel exports and fading hopes that China will increase products exports in the

set up that flows via Strait of Hormuz returned to this spring's lows. Per usual seasonality

August should see the near-lowest levels for the offline capacity in a given year and

hence per current estimate we expect offline capacity could decrease to ~9Mb/d, but

this assumes no material impact from the starting hurricane season in the US.

Figure 1: Global offline refining capacity vs European composite refining margin

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