As for crude oil demand, the situation seems far from optimistic.
In the past week, oil prices have been weak, and both bulls and bears have been fighting fiercely around the $40 line.
On the news front, there has been a lot of news from OPEC+ recently. There have been intensive announcements about the oil-producing countries’ production cuts, and there are still questions surrounding whether to extend the production cuts in August. Rumors are also flying everywhere. However, oil prices remain very calm. Obviously, the supply side is not the dominant factor in oil prices.
In contrast, the demand side has become the focus of investors. However, there seems to be confusing fighting signals on the demand side, making bulls afraid to buy boldly and bears reluctant to bet aggressively.
On the one hand, economic data from various countries have rebounded across the board, boosting market risk sentiment and showing that demand for crude oil has increased in many countries around the world after restarting their economies; in addition, EIA and The API report shows continuous inventory reductions, which seems to be an optimistic sign.
But on the other hand, as the risk of the second wave of the epidemic approaches, people are worried that the demand outlook will be clouded; at the same time, multiple reports have pointed out that the living environment of the oil refining industry is indeed very worrying.
Patrick Puyan, head of Total SA, Europe’s largest refining group, said: “The refining industry is going through a catastrophic year.”
According to foreign media reports, last year, top oil refineries refined more than $2 trillion worth of oil, but this year, this number is likely to decline significantly.
Dilemma 1: Refinery profits are slim
The Trump administration Since April, many measures have been taken to save the shale oil industry, which has indeed supported the US shale industry in Texas, Oklahoma and North Dakota, but has squeezed refinery profits. , driving up its production costs.
The industry’s most basic measure of refining profit is called the “3-2-1 crack spread” (assuming three barrels of crude oil make two gasoline and one diesel fuel), and today this One indicator has fallen to its lowest level since 2010.
Summer is usually a good time for refiners as demand for crude oil increases as consumers go on vacation. However, due to the epidemic, this year has become an exception, and some factories are even subsidizing oil refining.
The bigger problem is that, according to experience, when the oil market demand recovers, the recovery speed of demand for each refined product is uneven, which makes it necessary to choose the best one. Crude oil and buying the right fuel poses a huge problem for executives. Gasoline and diesel consumption is expected to rebound to 90% of normal levels in some cases, but fuel demand remains low, at only 10% to 20% of normal levels in some European countries.
Across the U.S. refining belt, refineries are constantly adjusting processing rates to accommodate potential demand fluctuations. In April, Valero Energy Corp.’s McKee, Texas, refinery cut its refining rate to about 70% amid the U.S. embargo.
The weakness means the industry’s overall revenue will fall to $130 billion this year from $130 billion in 2018, according to estimates from industry consultant Wood Mackenzie Ltd. of 550 refineries around the world. Just $40 billion.
Dilemma 2: Will the second wave of the epidemic cause secondary damage to demand?
Now, the worsening epidemic situation has once again clouded the demand prospects of many oil-consuming countries.
Andy Lipow, president of Lipow Oil Associates in Houston, said:
“The biggest concern for refineries is The outbreak will lead to another round of lockdowns around the world, which will again severely impact demand.”
Goldman Sachs analysts said that although the epidemic has not yet caused too many large-scale refining Any delays to projects, which would be operational from 2021 to 2024, are due as most of the demand and new refining capacity is in developing countries. However, there is an increased likelihood of refinery closures in developed countries, which will result in global crude oil refining rates being 3% lower than in 2019 during this period.
Currently, there is a pressing issue that needs to be addressed: the market.
OPEC+ can further balance the supply and demand side of the oil market by restricting the supply of crude oil. However, this move cannot have an effect on the demand side – it cannot promote the recovery of crude oil demand.
Steve Sawyer, head of refining at Facts Global Energy, said:
” The reality is that refineries are operating at barely enough speed to meet demand. However, with product inventories already full, any weakness in demand will mean refineries immediately respond by further cutting demand.”</p
