Goldman Sachs Warns Refinery Shortages Will Persist

Ras Tanura oil refinery facility in Saudi Arabia (AFP/Yonhap) As the scale of global refinery outages surpasses even the worst-case scenario, Goldman Sachs has forecasted that the supply shortage of petroleum products will continue until next year. The analysis indicates that while diplomatic negotiations can lower crude oil prices, damaged refinery facilities cannot be restarted through negotiations. According to a report by the commodities team at Goldman Sachs on Oct. 27, the scale of refinery outages in the Middle East was recorded at about 1.6 million barrels per day above average levels, while Russia was about 4.2 million barrels higher. The combined total of 5.8 million barrels per day exceeds the 5 million barrels per day presented as the worst-case assumption in the ‘Nightmare Refining Crisis’ report published by Goldman Sachs last month. Amid ongoing Ukrainian attacks on Russian refinery facilities, even the United States, which had the only remaining spare capacity, has seen its utilization rate reach the highest level since 1998, leaving no additional leeway. Transport bottlenecks are also tightening supply. This month, crude oil freight rates reached a record high of $24 per barrel, amounting to eight times the level from a year ago (about $3). As profits from crude oil transportation increased, even petroleum product vessels were deployed for crude oil transport, thereby reducing the maritime transport volume of gasoline, diesel, and aviation fuel. Crude oil exports from the Persian Gulf have recovered to 92% of last year’s level, but aviation fuel exports stood at 54%, diesel at 34%, and gasoline at 10%. In the case of petroleum products, which are highly flammable and vary in specifications, it is difficult to apply the ship-to-ship transshipment method used to bypass the Strait of Hormuz. A more significant issue is the backlog of scheduled maintenance. This fall, the global scheduled maintenance volume decreased by 27% compared to the previous year. This does not indicate a cancellation of maintenance, but rather that schedules have been intensively pushed back to the second quarter of next year. The scale of scheduled maintenance around next May is expected to be about 7.7 million barrels per day, surpassing this year’s peak (about 6 million barrels). In particular, the Asian region, excluding China, is expected to exceed 140% of average levels. Goldman Sachs warned, “The delay in maintenance will also increase the risk of unplanned outages, significantly shrinking the export supply of diesel and aviation fuel.” Inventory buffer capacity has also hit bottom. Middle distillate inventories in Singapore decreased by 44% compared to the previous year, and aviation fuel inventories in Europe’s ARA (Amsterdam, Rotterdam, Antwerp) declined by 56%. Although the global average retail fuel price reached about $223 per barrel, leading to a decrease of about 2% each in European oil demand and United States gasoline demand, this is assessed to be insufficient to reverse the inventory decline. For crude oil, Goldman Sachs forecasted that Brent crude will fall to $90 per barrel this coming December and average $80 next year. The outlook indicates that a trend of ‘weak crude oil, strong petroleum products’ will continue.