WoodMac: ‘Decade-long’ global gasoline surplus possible for refiners

The global oil product market could experience a surplus of gasoline supply as early as 2017, according to the latest long-term oil product market forecast from Wood Mackenzie Ltd. The research and consultancy firm explains that the surplus, combined with a deficit of middle distillate and fuel oil, would put significant pressure on refiners by the end of the decade.

Refiners currently benefit from low oil prices, unplanned refinery outages, and slower-than-expected ramp-up of new facilities, collectively helping keep oil product markets tight.

And refiners are struggling to meet gasoline demand growth of 420,000 b/d.

However, WoodMac cautions that oil demand growth will eventually slow in the long-term due to increasing efficiency and alternative fuel sources. The firm expects margins to fall by 2019 to the minimum sustainable level for some refiners and identifies key market indicators that could see gasoline cracks bottom out at low levels last seen in 2013.

“Although gasoline cracks have been very strong this year, we could see a complete reversal in the market in just 2 years,” explained Jonathan Leitch, WoodMac research director for oil product markets research. “The outlook for 2016 remains similar and in many ways stable, but in 2020 we start to see a glut of gasoline supply developing—in excess of 30 million tonnes—which doesn’t go away for a decade.”

The latest oil product analysis from WoodMac, which tracks 745 operational refineries globally, shows that gasoline yields are expected to increase 1% over the next 15 years. The firm says that even if no new refineries are built beyond 2020, there will still be an oversupply of gasoline globally for several years—the result of falling demand in the key market of North America, combined with continued declines in Europe and Asia, which offsets most of the demand growth seen in the emerging Asian economies, Latin America, Middle East, and Africa.

“Surplus supplies coupled with the continued growth of alternative fuel products from outside the refining system—increasing by 1.8 million [b/d] between 2014 and 2020 from products such as biofuels and gas and coal to liquid products by 2020—means that there will be increasing pressure on refinery margins,” said Leitch.

“We expect to see particularly strong growth in liquefied petroleum gas (LPG) supply from natural gas liquids (NGLs) in North America and the Middle East, and by 2019 margins could bottom out at minimum sustainable levels for Europe and Asia. We expect to see gasoline cracks come down and margins weakening again, taking us back to levels where we were last year and in 2013.”

Leitch noted, “Refiners will continue to invest in refining operations to meet global demand and increasing stringent product specifications to comply with environmental legislation, which could see an additional 5.5 [million b/d] in net refining capacity by 2020. This would put significant pressure on Europe and Asia for further capacity consolidation and the US refining sector could also start to suffer, particularly in areas without access to export markets.”