The product tanker market could be set for a respite in the coming months. In its latest weekly report, shipbroker Gibson said that “last month refining runs hit an all-time high of just over 85mbd, with refineries running much harder this summer than at any other point since the pandemic. Globally, refining has had a pretty good year with margins performing better than many expected; yet the industry is not without its challenges. Increased regulatory costs, competitive pressures from new refineries and changing oil demand dynamics will all continue to increase the pressure on older, less efficient plants, leading to not only changes in flows, but also outright volumes”.

According to Gibson, “for product tankers, the first half of the year saw global CPP export volumes fall back, barely exceeding 2023 levels. However, with refiners cranking up activity through June-August, seaborne CPP exports reached a 16-month high. In particular, strong export volumes from the Middle East were seen over summer, with refining runs there close to maximum levels, whilst Europe imported record volumes of jet fuel last month. Exports are now expected to fall back across most major trading regions, with refineries globally taking 3.5mbd of capacity offline for planned maintenance between now and October before bouncing back strongly by year end, where the IEA expects refining runs to set another new record. Yet, despite these good news stories, the sector faces challenges”.

“In Europe, refineries continue to come under competitive and regulatory pressure. Over the summer, the insolvency of Prax saw the UK’s 113,000 b/d Lindsay refinery close, just months after Petroineos ceased refining at the 150,000 b/d Grangemouth refinery. Regional facilities also remain under threat as the 650,000 b/d Dangote refinery in Nigeria continues to steal market share from European exporters, although the refinery has faced frequent operational setbacks as it seeks to achieve stable runs”, Gibson said.

Meanwhile, “in the US, P66 is in the process of permanently shutting the 139,000 b/d Los Angeles plant, whilst Valero is planning to close its 160,000 b/d Benicia refinery, also in California. However, with a change in US environmental policy, the fall in US refinery runs is likely to be slower than expected. Even in California, home to some of the strictest environmental policies in the US, the state is considering a support package to keep the Benicia refinery running. Similar to Europe, albeit from a more advantaged position, US refineries are also facing competitive pressures. Mexico is gradually bringing online the 340,000 b/d Olmeca refinery, leading to reduced imports from the US this year, whilst also facing continued competition from cheaper Russian barrels into Brazil”, the shipbroker noted.

“In China, refiners are also under pressure. Several plants have already closed in the past year, with increasing government pressure to rationalise capacity, whilst a crackdown on tax evasion threatens to further pressure small independent refineries. Adding to the pressure is declining domestic fuel demand as the country shifts towards EVs”, Gibson said.

However, according to the shipbroker, “despite these challenges, global refining throughput is still expected to grow by 500,000 b/d next year. OECD countries will see a 500,000 b/d decline, whilst non-OECD countries, mostly East of Suez will see their runs grow by 1 million b/d, with 40% coming from the Middle East, partly supported by the expansion of Bahrain’s Sitra refinery. In the near term, this may support incremental product flows from the region, but over time, rising domestic demand and declining demand in developing economies suggests that global CPP export volumes may be nearing a peak. However, beyond the fundamentals, considerable geopolitical uncertainty remains. Indian and Turkish refined products face a ban in Europe from January given these countries large imports of Russian crude, whilst Russian refineries and export terminals are a consistent target for Ukrainian drones, impacting product exports. If we are to see major Russia-related changes in volumes and/or flows, global seaborne products trade could be upended once again”, Gibson concluded
Nikos Roussanoglou, Hellenic Shipping News Worldwide