The IEA said in August that refinery throughput across OECD Europe nations fell in June by 530,000 bbl/d compared with the same month of 2022. For the third quarter, the agency forecast an even greater on-year decline of 600,000 bbl/d.
The IEA has cited the ban on Russian crude, which entered into force in December 2022 as the main reason for reduced output. The sanctions resulting from the invasion of Ukraine have forced European refiners to replace Russian oil with lighter and sweeter crudes.
Alan Gelder, Wood Mackenzie’s lead downstream analyst, told OPIS that the ideal
replacement for Russian crude would be Arab light oil. However, with Saudi Arabia currently reducing output, this has become quite expensive, pushing refiners to switch to lighter grades such as US crude.
As Ed Scardaville from US consultancy Baker & O’Brien explains, Russian Urals crude generates relatively more feedstock residue for the refineries’ hydrocracking, fluid catalytic cracking and coker units.
“If it’s a full-conversion refinery complex, I’ve seen a 7% loss in distillate production after switching from Urals to WTI,” Scardaville said.
“Relative to Russian crude, US crude gets you less diesel, jet fuel and fuel oil, but more gasoline,” said Woodmac’s Gelder.
Lower run rates in Europe may also be driven by pure economics. Last year’s extremely high margins pushed refiners to process as much crude as they could, whereas in recent months there hasn’t been the same incentive to maximize run rates, Gelder added. For instance, Spain’s Repsol achieved a refinery margin of $11.0/bbl for the first half of 2023, down from $15.5/bbl a year earlier.
Finally, extremely hot summer temperatures may have also limited production at some sites. According to the IEA, soaring temperatures can limit the recovery of saturated gas and light distillate streams at the top of the crude tower.
“Refineries do not like hot weather,” TotalEnergies CEO Patrick Pouyanné said in a recent earnings call with analysts.
—Editing by Rob Sheridan, rsheridan@opisnet.com
