Morgan Stanley: European refining margins set for rebound

LONDON (Reuters) — The bank’s spot European margin indicator fell to $6.50 a barrel from around $8 a barrel in mid-October, largely on the back of a rally in Brent futures, but forward margins held up.

Looking forward, margins could rebound due to firm demand, a heavy maintenance schedule and low inventories, the bank said in a note.

European oil demand grew around 140 Mbpd in Jan-Oct 2017, in sharp contrast to the declines of the last decade, and is expected to continue growing, the Morgan Stanley said.

1.5 MMbpd, or 11%, of European refining capacity could go offline in May. A heavy maintenance season early this year in the Middle East could eat into European imports from there.

Early March will see almost 1 MMbpd of capacity offline in the Middle East, partly because Saudi Arabia’s 400 Mbpd Yanbu refinery closes for 7 weeks, Morgan Stanley said.

Amsterdam-Rotterdam-Antwerp oil product inventories have already contracted to their five-year average with middle distillate stocks already below that level.

If demand is up 50 Mbpd year-on-year by 2Q 2018, and an incremental 15 Mbpd–200 Mbpd of capacity is offline, European refinery utilization could reach over 94%, with a spike towards 97% in May.

Reporting by Ahmad Ghaddar; Editing by Elaine Hardcastle

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