Refinery Outlook Bearish Through 2011 - IEA
February 11, 2010

The gloomy outlook for the refining sector is expected to linger through 2011, the International Energy Agency said Thursday.

"Despite the latest GDP growth projections reverting close to pre-crisis levels, the refining industry is far from regaining lost ground," the Paris-based energy watchdog said in its monthly oil market report. "In fact, the industry is going through a restructuring and consolidation process, which will take several months before any return to business-as-usual."

The IEA expected global refinery throughput to reach 72.6 million barrels a day in the first quarter, a slight downward revision from January's report. The level of first-quarter refinery runs will reflect a 1 million barrel rise on the year, but a decline of 1.35 million barrels compared with the first quarter of 2008.

Refining margins--the amount a refiner can make from processing a barrel of crude oil--have rebounded this winter due to a drawdown in oil product inventories and higher demand. But the construction of refineries over the past two years and a massive contraction in oil consumption during the recession have led to a glut of capacity.

"Despite some signs of improvement for the refining industry, its short-term outlook remains fundamentally bearish," the agency said.

Excess capacity has forced refiners to sharply curtail their output in recent months in a bid to trim oversupplied markets. Despite the run cuts, oil companies are being hit hard by weakness in the downstream sector, which dragged down fourth-quarter profits across the board.

The IEA has warned for months that longer-term "capacity rationalization," or the shutdown of some refinery units or entire plants, may be necessary to restore profitability in the industry.

The global surplus of crude distillation capacity could grow by the fourth quarter to as much as 3.4 million barrels a day, or 3.9% of global capacity in the first quarter of 2008, assuming typical run rates at 84%, the agency estimated.

Source: Dow Jones Newswires

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