Maintenance in Refineries, Strikes in France to Push European Diesel Prices Up
- October 4, 2022
- Posted by: Quatro Strategies
- Category: Energy
A series of scheduled maintenance programs at heavy oil refineries in Europe this autumn, together with strikes in France, is set to push diesel prices higher and tighten supplies just when the EU is preparing to ban Russian refined products, which is expected to come into force early next year. 1.5 million barrels per day (bpd) of crude refining capacity is expected to come offline in Europe for planned and unplanned maintenance. In September, that figure was 1.1 million bpd, and is above the 2015-2019 average for this period. In November offline capacity is expected to be 600,000 bpd.
The busier maintenance schedule is likely to be related to the COVID-19 pandemic. During the pandemic restrictions, a lot of extensive work was postponed and just essential maintenance was carried out.
Maintenance outages next month include Eni’s Sannazzaro refinery in Italy, Repsol’s Tarragona refinery in Spain, and Galp Energia’s Sines refinery, among others.
Europe has been increasing its diesel imports from other regions, including the Middle East and Asia. September imports hit a three year high of 1.6 million bpd.
However, while higher imports and a softening demand outlook are helping to ease the pressure on diesel markets, widespread refinery outages in France, partly due to strike action, could tighten supplies again.
Experts and analysts suggest that the market was ready for the planned outages, but what it was worried about was unplanned outages, like the strikes in France, that could cause problems for the oil products market.
Walkouts over pay and unplanned maintenance have resulted the temporary shutdown of four out France’s six oil refineries in the week to 28 September. This has taken offline 740,000 bpd, or over 60% of France’s refining capacity.
Exxon Mobil, operator of two of France’s refineries that shut down, said it was temporarily putting limitations in place for customers in line with the terms of its supply contracts.
Benchmark European diesel profit margins hit a two-week high of about $50 a barrel on Wednesday, driven by the French strikes. If they drag on, shutdowns will likely tighten refined product supply.
Moreover, because of the ban on Russian refined petroleum products, Europe is expected to lose 500,000-600,000 bpd of diesel early next year.
The European Union will stop buying all Russian crude oil delivered by sea from early December, and will ban all Russian refined products two months later, in response to Moscow’s invasion of Ukraine.
Prices are expected to soar by mid-January to February, but it could come earlier as well, as the market starts to panic.
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