The outlook for the global refining and marketing sector appears to be positive over next 12 to 18 months. At least that’s the verdict of one global rating agency.
Writing to clients on Friday (September 14), Moody’s said it has changed its outlook for the sector to ‘positive’ from ‘stable’, reflecting a strong earnings growth potential for the sector on the back of higher distillate margins and favorable crude differentials.
The agency expects EBITDA (earnings before interest, taxes and amortization) growth of 13% to 15% through 2019, and likely into 2020, due to higher margins.
“Higher margins will propel crack spreads, a crucial factor in oil refiners’ profitability,” said Arvinder Saluja, Senior Analyst at Moody’s. “Meanwhile, gasoline demand will remain high, though demand from OECD countries likely will decline over the longer term due to increasing vehicle fuel efficiency and biofuel consumption.”
Globally, distillate fundamentals will remain “more favourable” than gasoline fundamentals, with higher demand from the industrial, mining and construction sectors, and already low inventories, the agency noted further.
Meanwhile, for many North American refiners, domestic crudes will remain cheaper, Moody’s said. Distillate demand will remain robust, with below-average inventories due to strong economic growth and potential regulation. “Even so, a sudden drop in demand for gasoline, or production surpassing demand, would increase risk,” it concluded.
On a related note, but switching tack to Europe, fresh research suggests Germany, Italy and Spain will remain major contributors to the European crude oil refining industry.
The three countries together account for more than 35% of the active refining capacity among all the countries in the region, says data and analytics company GlobalData. Overall, Germany, Italy, Spain, UK and the Netherlands are the key countries in Europe, accounting for over 55.1% of the total refining capacity in the region.
Of these, Germany recorded the highest active refining capacity of 2.1 million barrels per day (mbd) in 2017. Soorya Tejomoortula, Oil and Gas Analyst at GlobalData, noted: “Despite negligible domestic crude oil production, Germany has the largest refining capacity in Europe. The country heavily relies on crude oil imports from Former Soviet Union nations and North Sea for refining.
“However, Germany’s refining industry currently is at cross roads due to increasing competition from Russian and Asian refiners and stiffening environmental regulations.”
All things considered, the next 12 months are likely to be interesting for refiners. Distillate prices are less elastic than those for gasoline, while new international maritime emission standards will mandate low-sulfur fuels for the shipping industry, sparking demand for compliant products in an already tight market.