The refining supercycle is coming to an end

The refining industry is witnessing the end of the supercycle of huge profits and record margins that began with post-pandemic demand growth and war and sanctions-related supply disruptions.

This year, the weaker Chinese economy and fuel consumption, a surge of new refining capacity in the Middle East and Africa and disappointing demand from developed economies have pushed refining margins to multi-year lows.

U.S. refiner profits have been much lower this year as refining margins have fallen from record highs two years ago.

The end of this year’s summer season led to weak margins in Asia, while weaker fuel demand and economic growth in China also hurt refining profits.

Refining margins in Asia fell in the first week of September to their lowest level for this time of year since 2020, which could lead to more run rate cuts at Asian refiners, including in China.

Refining margins in Europe are also under pressure, with reports that Spain’s Repsol and Italy’s Eni are considering cutting run rates.

Gasoline profit margins in Europe averaged $12.10 a barrel in August, down 61 percent from the same month in 2023, according to LSEG data cited by Reuters.

Diesel margins are even weaker, with August profit margins falling to their lowest level since December 2021.

In Singapore, the composite refining margin and the gauge for Asia’s refining profits fell this week to the lowest level of the season since 2020 as the pandemic reduced demand.

Massive new refineries, including Africa’s largest in Nigeria, Kuwait’s Al Zour refinery and Oman’s Duqm, are also weighing on the profits of smaller refiners, particularly in Europe.

Earlier this month, the owners of the Grangemouth refinery, Scotland’s only crude processing facility, confirmed the plant would close in the second quarter of 2025 as it struggles to compete with complex new facilities in Asia, Africa and the Middle East.

By Tsvetana Paraskova for Oilprice.com

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