Fresh surge in Covid-19 cases, eventual lockdowns is likely to delay the demand recovery in the global oil market, said an ICICI Securities report.
It however, noted that with ‘OPEC+’ capping supply to ensure supply deficit, impact on oil prices is likely to be muted.
“Fresh surge in Covid cases, consequent lockdowns and slow rollout of vaccines, especially in Europe, are likely to delay demand recovery to pre-Covid levels,” the report said.
However, delay in demand recovery may delay gross margin recovery for refineries.
The ICICI Securities report also noted that vaccine-driven recovery in global oil demand and permanent closure of refineries is estimated to boost global refinery utilisation to 77.8 per cent in CY21E from 37-year low of 72.5 per cent in CY20E.
“We estimate global refinery utilisation to gradually rise from 79.1 per cent in CY22E to 80 per cent in CY26E. IEA estimates permanent closure of 3.6m b/d (barrels per day) of refining capacity, but believes 6m b/d is required to ensure global refinery utilisation is sustainably above 80 per cent.”
It noted that in CY07-CY18, 16.5 million b/d of refining capacity was added globally, but 8 million b/d was shut implying net capacity addition of just 8.5 million b/d. As per the report, more refinery shutdowns are required and are likely too in the medium and long term to prevent oversupply.
“BP Plc estimates 10m b/d of refinery closures would be needed by CY40 to prevent refined products oversupply. Closures are likely mainly in Europe, Japan, Australia and US east coast. Chinese teapot refinery shutdowns are also not ruled out.”