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June 16, 2020

Impact of Covid-19 on North American Refinery Sector

Demand for transportation fuel, the mainstay for oil refineries has taken a huge hit due to nation-wide lockdowns across North America since late March 2020. As piling up stocks caused challenges in the form of high inventory cost, North American refiners had to deal with storage problems of gasoline and jet fuel that have shorter shelf life.

By GlobalData Energy

Demand for transportation fuel, the mainstay for oil refineries has taken a huge hit due to nation-wide lockdowns across North America since late March 2020. As piling up stocks caused challenges in the form of high inventory cost, North American refiners had to deal with storage problems of gasoline and jet fuel that have shorter shelf life. Lack of preparedness to tackle sudden demand erosion at such a short notice forced refiners to limit producing higher product volumes, making them revisit their business portfolios, slash capital expenditures, and stall avoidable projects to conserve cash and see off the current depressed market situation.

Several North American refiners have reduced their capex in response to the economic slowdown and adverse impacts of COVID-19. Petroleos Mexicanos has reduced capex by nearly US$2.4 billion, while ExxonMobil Corp slashed consolidated capex by US$10 billion in 2020, from the original plan of US$33 billion, indicating the magnitude of impact that the current crisis has on the region’s refinery sector.

Few of the refineries have also reduced their operating capacities, while a few others have decided to suspend operations to navigate through the current crisis. Marathon Petroleum ’s Texas City III refinery decreased its crude runs by 75 percent due to a sharp fall in fuel demand amidst the COVID-19 outbreak. Whiting refinery, operated by BP plc, has reduced nearly 15 percent of its 440 mbd production capacity. Few other refineries, such as the Toledo II in the US and Come By Chance in Canada, have suspended operations to tackle the devastating impacts caused by the virus.

The short-term to mid-term impact of the current crisis may vary from fall in prices coupled with inventory build-up to depressed demand of gasoline. The long-term impact might enable refiners to focus more on petrochemicals that are relatively immune to global economic conditions. Additionally, as demand for cleaner fuels witness a spike in future, it might prompt refiners to invest more on producing more environmental friendly fuels.

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