Moody's expects EBITDA for the North American and EMEA independent R&M sector EBITDA to decline by more than 15% through late 2017/early 2018, owing to continued anemic crack spreads. Even summer gasoline demand has not provided a much-needed lift to refining margins, as demand has proven lower than downstream operators had expected, pushing inventories higher.
"Adding to the challenge of weak refining margins, we are seeing global and regional product inventories increase, worsening the glut of fuel products in North America and Europe," noted Arvinder Saluja, a Moody's Vice President -- Senior Analyst. "Slow demand in Europe and rising Chinese stockpiles, along with the onset of the shoulder season for North American gasoline demand, prevent a drawdown of inventories in the near term, keeping a lid on refining margins globally."
And despite tight refinery margins and high fuel inventories, most refiners have reduced utilization only marginally in 2016. Refiners closer to crude production or to export facilities, with access to cheaper imported oil, or with tighter product supply/demand balances in their regions, will enjoy better crack spreads. As a result, most refineries along the Gulf and West Coasts are likely to maintain high utilization, along with some Midwest and Rockies refineries. East Coast refineries will have to cut production amid historically high inventories, few opportunities to export, and continuous imports from Europe.
The negative outlook could be revised to stable if global inventories -- especially for US gasoline -- decrease significantly, bringing fuel stockpiles back to historical average levels, and with better capacity rationalization for weaker and higher-cost refiners in Europe. A positive outlook could be considered if the US and Asian diesel and distillates markets surged along with gasoline demand, leading to much stronger crack spreads.
Powered by Capital Market - Live News
Disclaimer: No Business Standard Journalist was involved in creation of this content
