Oil markets are likely to be hit by a global supply glut, further weakening crude prices

Marathon Petroleum Corp. – the owner of the largest refinery in the US – plans to use its 13 plants at an average of 90% of capacity this quarter, the lowest for the period since 2020. Similarly, PBF Energy Inc. announced that it is preparing to operate at least. In three years, Phillips 66 will run its refineries near a two-year low and Valero Energy Corp. expected to reduce oil production.

Together, those four refiners account for 40% of America’s gasoline and diesel production capacity.

The US oil refinery — a key factor in the world’s supply-demand balance — is faltering as consumption figures and profit margins shrink. The decline underscores the possibility of a looming oversupply glut, a threat that has weakened oil prices to gain as much as 7% this year despite OPEC+ production cuts and rising tensions politics. The trend also defies the International Energy Agency’s estimate that global oil producers will produce about 900,000 barrels a day more this year.

“Squeezed refining patterns set the stage for another round of heavy-duty refining in the United States this fall,” Vikas Dwivedi, Macquarie’s global oil and gas strategist, said in an interview. of Houston. “That will affect the balance and could add to the bad construction in the US for the rest of the year.”

Fuel conversion rates are shrinking amid differences in refinery shutdowns, conversions and the simultaneous addition of new power to electric cars and heavy-duty trucks. LNG is growing in popularity in China, the world’s largest oil exporter.

At the same time, world production of raw materials is expected to rise towards the end of the year, although new refineries are being added. The US has been able to export some of the surplus to Nigeria’s giant Dangote refinery – which has been consuming oil from the Permian – and Mexico’s Dos Bocas refinery is scheduled to start production this year. Overall, between 2023 and 2030, the world is expected to add about 4.9 million barrels per day of net energy, roughly what India is doing now, according to Bloomberg NEF.

But that relief may be short-lived as Guyana ramps up production as the Organization of the Petroleum Exporting Countries and its allies plan to cut production by about 540,000 barrels per day in the fourth quarter.

Although the plan is subject to change, those barrels are set to hit the market as shale producers bring in output from wells drilled earlier in the year. The US is expected to finish the year pumping a record 13.8 million barrels a day, about 600,000 barrels more than the same period last year, Dwivedi said.

The potential for supply to outstrip demand is to reduce the high-level political risks added to crude prices, he said.

“The market is no longer willing to pay more for that because the conflict has not caused a loss of barrels,” said Dwivedi, who sees benchmark Brent oil hitting $75 a barrel in the fourth quarter and falling to $64. in the second part.

Phillips 66, America’s largest oil producer by market value, has cited such a soft network as the reason for its reduced forecasts. The Houston-based company plans to take preventive measures as it cleans up “the weakest network we’ve seen in a while,” Chief Financial Officer Kevin Mitchell said during the company’s second-quarter earnings call. company.

Marathon “will run 90% economically” this quarter, a multi-year low during that period, said Chief Marketing Officer Rick Hessling. The company also said that China’s economy is still worried and the return of OPEC barrels may bring some stability in the short term.

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