US refiner warns of impending capacity shortage

The CEO of Phillips 66 told Bloomberg that there is a looming shortage of refinery capacity around the world, which could become a reality as early as next year.

The potential shortage would be caused by capacity closures, Lashier said, as some refiners succumb to low refining margins. The closures could remove 700,000 barrels a day from the market, he added.

“The United States has become very competitive in refining,” Lashier said. “We are able to compete in global markets worldwide.”

Lashier’s bullish outlook comes shortly after reports that U.S. refiners were planning production cuts due to low margins. Bloomberg reported in mid-August that Marathon Petroleum planned to reduce capacity utilization to 90% at all 13 refineries, down from 97% in the second quarter. PBF Energy was aiming to lower its processing rates to a three-year low.

Valero Energy would cut its operating capacity from 3 million barrels per day to 2.86 million barrels per day, the lowest processing rate in two years. Phillips 66, for its part, planned to cut processing rates to the low 90% of capacity, down from 98% in the second quarter, the highest level in five years.

“Compressed refining margins are setting the stage for another round of heavy U.S. refinery maintenance in the fall,” Vikas Dwivedi, global oil and gas strategist at Macquarie, also told Bloomberg last month. “That will weigh on balance sheets and could help boost U.S. crude inventories for the rest of the year.”

Phillips 66’s Lashier said the U.S. fuel market has been well-supplied this year despite low or weak demand, but he still expects a global shortage of refining capacity next year, which could expand markets for U.S. refiners that can remain profitable at margins that would force refining plants elsewhere to close.

By Irina Slav for Oilprice.com

More Top Stories from Oilprice.com