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  • How Are Refiners Benefitting from the Oil Price Drop?

How Are Refiners Benefitting from the Oil Price Drop?

May 05 2020 Read 294 Times

The COVID-19 pandemic has sent shockwaves through the oil and gas industry, with WTI prices recently slipping into negative territory as storage capacity in the United States was maxed out. As the world comes to terms with a 'new normal' energy experts are predicting refiners could enjoy fleeting benefits in the wake of the coronavirus outbreak, though not necessarily enough to offset the drastic drop in fuel demand triggered by the outbreak.

As well as suffering a hit from the COVID-19 outbreak, oil prices spiralled as a result of an ongoing price war between Russia and Saudi Arabia. Prices plummeted and have yet to catch up despite the two oil-rich nations coming to an agreement. For refiners, this has presented a fleeting opportunity to benefit from lower feedstock costs, without a proportionate slump in fuel prices. While this offers some respite, Energy Aspects analyst Sandra Octavia warns the respite will be short lived.

"Refiners will get temporary relief from the cheap crude, but any sustained increase in runs will see a worsening oversupply situation in the products markets beyond 2Q after peak turnaround season,” says Octavia.

Oil industry braces for demand slump

While there are plenty of contrasting opinions, one thing most experts seem to agree on is a general fall in demand. With international air travel indefinitely on pause until countries curb outbreaks or a vaccine is developed, demand for jet fuel will plummet. Economies have also slowed down and people are travelling less, which will also contribute to the slump.

Some experts have a relatively dark outlook, with Royal Dutch Shell CEO Ben van Beurden warning oil demand may never recover to pre COVID-19 levels. Analysts at Citigroup say jet fuel consumption may not bounce back until the second half of 2022, while Boeing CEO Dave Calhoun predicts it could take three years for passenger traffic to reach 2019 levels.

Access to storage a major hurdle

Storage limitations will be a major hurdle for refiners looking to benefit from the crude price collapse, an issue that was recently faced by American producers. Without buyers or the capacity to store large inventories, refiners will need to increase storage facilities or risk facing the same scenario that forced American producers to sell WTI at a loss.

Want to know more about the turbulence ahead for the energy sector? Don't miss 'The Only Certainty is Uncertainty for Corona-Stricken Oil Industry' which explores the aftermath of the COVID-19 pandemic.

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