So far, product markets in 2020 have suffered tremendously due to the demand contraction triggered by the COVID-19 pandemic. Lockdown measures have drastically reduced fuel consumption, particularly for jet fuel, as the air transportation sector was hit hardest. In response, global refinery intakes in the first three quarters of the year have remained some 7.5 mb/d, on average, below the same period a year earlier. In fact, refinery intakes plummeted to historic lows of 68.7 mb/d in May 2020, down sharply from the pre-pandemic level of 83.1 mb/d in December 2019. Since then, the easing of lockdowns along with improvements in road and air transport activities, linked to the summer season, have only provided limited improvement, with refinery throughputs still averaging below year-ago levels.
On a regional basis, almost all products in the US have seen stark declines in demand, on account of the rampant spread of COVID-19, mainly in gasoline, distillates and jet fuel. However, naphtha saw some support, as the petrochemical sector resorted to a more naphtha-based diet.
In Europe, following a short-lived recovery over the summer months, COVID-19 infections are on the rise again, with Spain, France and the UK being among the most affected countries. Currently, European governments are reintroducing and intensifying lockdown measures to reduce the number of cases and control hospitalization rates. On the other hand, the gasoil market has benefitted from relatively healthy demand from the trucking and freight sectors.
In Asia, the picture was mixed. In China, better-than-expected growth was observed in recent months across all product categories. Meanwhile in India, the worsening situation with regard to the spread of the pandemic took a toll on oil demand in the country, impacted by a steep drop in diesel and transportation fuel requirements.
Despite this, refinery runs in Asia remained high over the summer months, in order to take advantage of cheap crude oil prices. Looking ahead, heating oil consumption in the US is expected to increase in the coming months as more people continue to work from home. In addition, prospects for a colder-than-normal winter could add support. However, tele-working will negatively impact transportation fuels.
Nevertheless, product stocks remain exceedingly high, which will pressure distillate margins. Moreover, the switch to winter-grade gasoline requires additional volumes of naphtha-based blending components. In Europe, the resurgence of the pandemic will most likely continue to weigh heavily on jet fuel and gasoline markets, while distillate markets will continue to see support from high levels of heavy trucking and forecasts for a colder winter. However, this is only expected to provide limited recovery and levels are still projected to remain well below a year ago. In Asia, projections for a colder winter are expected to boost kerosene and LPG demand in the region.
However, overall product imbalances will most likely grow, as overall fuel exports to other regions, particularly the OECD, are expected to decline. This could result in increasing product stock overhangs and eventually prompt refiners to reduce intakes. Overall, global refinery throughput will continue to recover slowly, with the near term market environment expected to remain relatively weak, due to the large overhang in middle distillate stocks. The ongoing regional resurgence in COVID-19 infections will continue to negatively impact market sentiment until such a time as a vaccine is made available. Nevertheless, the predicted colder winter could lend some upside in the Northern Hemisphere.
Source: OPEC