Insight: Higher Rates Alleviate Some Pressure, but Not All

Limited Spare Capacity Supports Refined Product Markets This Summer. The combination of large refining capacity cuts in North America and Europe, deeper than normal maintenance and the reduction of Russian refined product imports into Europe have contributed to the current tightness in refined product markets. Diesel, gasoline and jet fuel spreads to crude have risen to record levels as a result.

The large reduction in capacity the past two years will make it difficult for refiners to manage the reduced availably of Russian refined products this summer, particularly with a strong recovery in jet demand and seasonal gasoline demand strength. North American refiners have cut roughly 1.5 million b/d from 2019 levels Europe trimmed another 650,000 b/d of capacity. Asia cut 1.0 million b/d of additional capacity, most of it in the OECD and Singapore, a large exporter of product. South Africa also made significant cuts, closing roughly 400,000 b/d. In sum almost 4.0 million b/d of refining capacity has shut down since 2019.

These cuts were due to the sharp downturn in demand from the pandemic, but also the result of larger refiners accelerating decisions to reduce capacity in the face of longer-term trends. The energy transition, as well as competition from new capacity in in the Middle East, Asia, Africa and Latin America encourage shutdowns in the U.S. and Europe.

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