ESAI: Wave of new petroleum product supply yet to materialize

Despite a jump in world petroleum-product demand during the first quarter, product supply underperformed in key Middle Eastern and Latin American countries where refining capacity has risen, according to ESAI Energy LLC’s recently published Global Fuels Outlook.

The implications of the slower-than-expected ramp-up of new capacity is higher refining margins and more crude processing in markets such as Europe, the report indicates.

Data for Saudi Arabia show its refineries processed 2.2 million b/d of crude in December, but cut processing rates to 2 million b/d in the first quarter even though ramp-up was under way at the 400,000-b/d Yasref refinery (OGJ Online, Apr. 17, 2015).

In Brazil, the slow ramp-up at the newly commissioned 115,000-b/d first train of Petroleo Brasilierio SA’s Rnest refinery (OGJ Online, Mar. 19, 2015), along with low runs at two existing plants, constrained product output in Latin America’s largest market. Refiners in Brazil processed 1.9 million b/d of crude in the first quarter, down 160,000 b/d compared with a year earlier.

The report notes there are competing interests in crude exporting countries such as Saudi Arabia, Brazil, and others that may have slowed the expansion of new supply. For crude exporters, dramatically increasing domestic processing undermines crude exports at a time when some exporters are competing for market share in Asia.

“Investment in Saudi Arabia, Brazil, and elsewhere is diesel-oriented, so the lack of supply amid high demand was very bullish for that product,” explained Andrew Reed, ESAI energy principal. Regarding possible reasons supply underperformed, he said, “For some countries, processing more crude places a cap on crude exports when producers are occupied with strategic issues like market share in Asia.

“In the end, we maintain our view that a wave of supply from Latin America and the Mideast will have a bearish impact on petroleum product markets,” Reed said. “However, this bearish turning point is only likely to happen in late 2015 and 2016.”

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