APPEC-Global refining output seen staying near full capacity on high margins

By Muyu Xu and Trixie Yap

SINGAPORE (Reuters) – Refiners globally are expected to run at near full capacity in the near term to seize strong margins while crude oil supply remains tight, a senior official from Equinor said at an energy conference in Singapore on Tuesday.

Refiners are enjoying robust margins, supported by resilient oil demand despite faltering Chinese economy growth and global economic recession concerns. Asia’s complex refining margins rose to around $12 a barrel in August from around $8 a barrel in July.

“We see refineries are running high, at very great margins…It would be a big question why (it won’t continue to run high),” Alex Grant, senior vice president for crude, products and liquids at Norway’s Equinor, said on the sidelines of the APPEC conference.

But refining output in China is hard to predict due to the uncertainty of its exports quota policy, he said.

China last week issued its third batch of refined oil product export quotas for 2023. The market is watching if more quotas will be allocated before the year end.

Grant also expects the crude market to remain in tight supply, especially the heavier crude with higher sulphur content, as a result of the supply cut from OPEC+ countries and new refining capacity online, but there are no “shock shortages” coming.

“That’s what price is for. We have seen the margins (of different grades) adjust appropriately,” he said.

The premiums of sweet crude benchmark Brent to sour crude Dubai have fallen to near parity over the past two months in respond to a 1 million barrels-per-day (bpd) voluntary cut from top oil exporter Saudi Arabia.

Equinor currently produces around 750,000 bpd of medium sour crude Johan Sverdrup from its North Sea oilfield, and will maintain that production level rather than increasing it to new, significant levels, said Grant.

Johan Sverdrup has been the clear winner in the race to replace Russian oil at Europe’s refineries after Western nations imposed sanctions on Moscow over the war in Ukraine.

With U.S. crude WTI Midland being introduced into the dated Brent benchmark assessed by S&P Global Commodity Insights in June, Grant said he does not expect Johan Sverdrup to be added into the benchmark in the foreseeable future.

“Perhaps it’s not necessary. With liquidity that is there now,” he said.

Johan Sverdrup has been proposed as a potential candidate to be delivered into dated Brent.

(Reporting by Muyu Xu and Trixie Yap; editing by Jason Neely)