While the oil industry is moving in the right direction with a number of refinery closures announced since October, more closures are likely needed, as the global oil demand to reach pre-Covid-19 levels by 2023, said the Bank of America (BofA) in a new report.
Refinery closures span the US, Northwest Europe, and the Asia Pacific region and totalling nearly 1 million barrels per day (bpd) of capacity, according to the latest Global Energy Weekly from BofA Securities.
Meanwhile, a handful of struggling refineries, especially in the Asia Pacific region, have undertaken reviews to determine whether closing or repurposing are better options than continuing refinery operations.
In addition to closing plants, the industry idled capacity and cut runs at active refineries, hoping to restore operations as margins improve. Platts estimates 16 million bpd of outages globally YTD, up nearly 8 million bpd year-on-year, which helped draw product stocks down from record levels. Yet, margins across most regions recovered only modestly, limited by a fragile demand rebound and capacity at the ready.
"Gasoline cracks rallied to two month highs this week, but winter headwinds could push cracks lower once again," the report said, adding that rising Covid-19 cases across the Northern Hemisphere have triggered lockdowns and more restrictive measures seem likely.
Mobility trends are weakening in Europe and states like California and New York, pointing to soft gasoline demand this holiday season. Furthermore, gasoline inventories have also risen to new five year seasonal highs recently. These factors could set winter gasoline cracks up for weakness in the coming weeks.
"Summer grade gasoline cracks have rallied nearly $2 per barrel recently but remain just shy of our 2Q21 forecasts. While we remain constructive on gasoline cracks versus the forward curve for next summer, upside is likely limited due to the amount of underutilized refining capacity that could respond to higher margins," the report said.