Massive build-ups in stocks in recent months are set to keep profit margins for refining crude into petroleum products like road and aviation fuels subdued, the International Energy Agency said on Tuesday.
“Large implied product stock builds set the stage for a subdued margin environment for the near future,” the IEA warned.The new coronavirus outbreak which at its peak meant that over 4 billion people where under some form of lockdown destroyed demand for oil products, with road and aviation fuels being the hardest hit.
Globally, mobility was reduced by close to 70 percent in April and 40 percent in May, according to the IEA.As a result, refining margins in key hubs like northwest Europe and Asia Pacific turned negative, meaning that refiners were producing the product at a loss.
The agency said that in April global refining intake was down 6.6 million barrels per day (bpd) to 68.8 million bpd month on month, and fell by a further 1 million bpd in May.OECD oil product inventory stocks in April gained around 2 million bpd to 1.56 billion barrels, the IEA said, with middle distillates leading the increase.
Preliminary data for May shows crude and oil product stocks increased in the United States and Japan, while falling in Europe.European May oil product fell by 10.3 million barrels in May, the IEA said, while U.S. stocks added 43.5 million barrels.
The IEA said road traffic and mobility in Northern Europe was almost back to normal as more governments ease lockdowns, and in the United States it returned to previous highest levels, but the agency did not expect a full rebound in refining activity until 2022.
“A potentially higher maintenance programme in 2021, to allow refineries to catch up with the work deferred in 2020 due to travel restrictions and social distancing measures, could weaken the recovery in runs,” the IEA said.”In 1Q20, government-held stocks increased by nearly 2 mb, mainly product stocks in Europe,” it added.