March 7, 2024

Navigating the Global Refining Landscape in 2024: Trends, Challenges, and Opportunities

As we venture into 2024, the global refining industry is experiencing a dynamic interplay of factors that are shaping its current state and future trajectory. These industry dynamics have major impacts on crude oil prices as well as prices of refined products as they shape the supply & demand curves. Refineries worldwide are navigating a complex landscape from dealing with robust demand to navigating the energy transition. Let's delve into some of the key trends, challenges, and opportunities that are defining the global refining industry in 2024.

Robust Margins and Strong Performance

The refining industry has kicked off the year on a strong note, with major U.S. fuelmakers surpassing Wall Street's earnings expectations in the last quarter of 2023, driven by solid refining margins and operational performance, as well as Mexico and Europe buying a large share of U.S. refined product exports in the last quarter (spiking to 719 kbd for Europe in December 2023 according to Kpler data). This trend though is not confined just to America.; refiners globally are enjoying hefty gains, thanks to a rebound in margins across various oil products, including diesel, jet fuel, and gasoline.

Global Demand Growth: A Driving Force

A pivotal factor underpinning the industry's success is the global demand growth for refined products. U.S. refiners, for instance, are leveraging this demand surge to bolster their exports, with petroleum product exports reaching two-year record highs of 3,547 kbd of refined product in December 2023 according to our data. Flows are moving toward South America and Europe, but also significant exports to south asian countries such as India. This global oil product demand upswing is expected to continue, with gasoline and distillate demand projected to grow, further encouraging refineries to maximize their output and operational efficiency.

The Asian Market: A Focal Point of Dynamics

Asia, a critical player in the global refining landscape, is witnessing its own set of challenges and opportunities. Despite robust demand from countries like India, the region has experienced unplanned refinery outages, affecting overall capacity. Kpler data shows that the utilization rate in China has been reduced over the last year, for example. Moreover, with significant capacity offline for maintenance, the Asian market's supply-demand balance is under scrutiny, influencing global refining margins and inventory levels. This is likely to create continued openings for countries from the Middle East, such as Saudi arabia, that export a significant amount of refined product to Asia. Kpler’s data shows an expected export growth of 300 kbd+ in March.

Challenges Ahead: Capacity and Inventory Concerns

While the industry enjoys strong margins, there are looming challenges. Global refining capacity additions are lagging, creating a tighter supply environment against a backdrop of strong demand. This discrepancy is further exacerbated by lower-than-average inventory levels for gasoline and distillates, and crude oil inventory levels dropping from January to February based on Kpler’s data, highlighting the need for strategic capacity management and operational agility in the face of evolving market conditions.

Navigating Market Volatility: A Strategic Imperative

Refiners are navigating a volatile market landscape, where factors like OPEC+ decisions such as production cuts and geopolitical events can alter supply dynamics. The industry is also preparing for potential shifts within product demand, as refineries adapt to seasonal changes and evolving market preferences. This necessitates a strategic approach for the oil and gas industry, emphasizing flexibility and adaptability to maintain profitability and market competitiveness.

In Conclusion: A Year of Strategic Navigation

The global refining industry in 2024 will be characterized by a mix of shortening supply, and emerging challenges as emissions regulations get tighter, along with significant opportunities. As the industry continues to evolve in response to global demand shifts, capacity constraints, and market dynamics, strategic foresight and operational excellence will be paramount for refiners aiming to thrive in this complex and dynamic landscape.

Kpler’s recently released Refineries Intelligence product, along with trade flow, freight, inventory data, and research, can provide tremendous benefits for market participants to help them identify upcoming challenges and opportunities to reduce their risk and maximize their return. Feel free to request a demo and see how Kpler can empower your market strategies.

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