Thread by @Big_Orrin

1. Hearing so much nonsense about there being insufficient refinery capacity globally. Lets start on capacity, The BP Statistical review showed that in 2018, 83mbpd of crude oil was refined through 100mbpd of global refining capacity. That throughput is the highest recorded by BP

2. 2022, refinery throughput is less than that, Further, in 2021, BP recorded a Global refinery capacity of nearly 102mbpd. Means there is more capacity now then in 2018 and less throughput than in 2018. Crazily there was no complaints in 2018 about the lack of refinery capacity

3. Now if we look at product cracks. they are all poor apart from Middle Distillates. What does that mean? Effectively the refinery capacity is trying its hardest to produce middle distillates but in doing so it is overproducing other products.

4. When you have one product holding the refinery margin up, then this is what happens. You get a vicious circle where there is too much of the product that you dont really want just to produce the product you do.

5. Lets take Asia and Singapore cracks

Gasoil $30
Naphtha -$9
92 Gasoline: $2
HSFO: -$20

One product holding the whole edifice up.

6. Or NWE

Gasoil: $37
Gasoline: $5
Naphtha: -$12
HSFO: -$30

Are you getting the Jist? Refinery capacity is easily sufficient. the problem is insufficient Gasoil.

7. So what is the problem? Well there are 3

The First was Chinese exports. For much of 2022, China prevented the exportation of products. The reason was Beijing's war on the teapot refiners to try and close or relocate them away from the population centres they were polluting.

8. It meant that there was less gasoil in the market particularly during the summer months when inventories build. It meant flows of gasoil that normally move East of Suez to West were moving from east of Suez to further East. It meant US exported more to cover this shortage

9. The second was the Russian/Ukraine war. Everybody forgets that Russian Refineries processed less crude than they previously did. Therefore, less products were exported by Russia. Middle Distillates and Straight Run Fuel Oil were the biggest losses from the market.

10. Finally the third factor: Energy prices. High energy prices meant that refiners have run a lighter slate of crude oil this year than they normally do. It means secondary units such as cokers and crackers have been underutilized because they are the most energy intensive units

11. Lighter crude has lower yields of middle distillates and higher gasoline when secondary units are taken into consideration. It means refineries have been yielding more gasoline and naphtha and less distillates. #Crude_Quality_Matters

12. A heavier crude slate and higher coker/cracker utilization would have yielded more middle distillates and less gasoline/naphtha. It would have reduced the gasoil crack but it would have improved both the naphtha and gasoline cracks.

13. It would have left the system better balanced and refiners in a better position to make throughput decisions rather than just chase the one product. It would almost certainly have meant lower backwardation in the Gasoil spreads.

14. Lower Backwardation would have meant more gasoil stocks in PADDs 1a/1b for winter. Just reducing backwardation would have meant lower diesel prices. Then we would not have had stupid headlines such as only 25 days of diesel left and the US would run out by Thanksgiving

15. I said at beginning of 2022 that gasoline was the product that refiners were most worried about. It has proved to be case with cracks much less than normal and inventories above normal in Singapore,Fujairah, ARA etc. That was because i could see effect of lighter crude slate

16. It is time that proper analysis is made in the oil market rather than just generating hysterical narratives

The information is out there but it is chosen to be ignored. The lack of refinery capacity narrative is a perfect example of poor analysis creating wrong headlines

17. Lets state it again. There is no global refinery capacity shortage. The fact is there will be too much in the coming years and refineries will have to close particularly the older less efficient ones in the west. That, particularly in US, will cause a lot of gnashing teeth