Refining capacity closures and resilient fuel demand have tightened global fuel markets in recent weeks, benefiting refiners globally.
Refining margins have been rising this year and hit in May the highest global composite margin in more than a year. As the driving season begins and summer approaches, peak demand in the northern hemisphere is here. Refiners, including U.S. refining giants, are benefiting from the higher margins, although these margins are far below the record highs seen in 2022 amid the oil market turmoil.
Still, global composite refining margins hit $8.37 per barrel in May—the highest level since March 2024, according to data from Wood Mackenzie cited by Reuters.
The higher margins and demand are a boon to refiners which saw increased turnaround activity and weak refining margins in the first quarter of the year.
However, with the driving season now started and fuel market balances still tight, refiners could see better fortunes in the second quarter of the year.
Several refineries have stopped crude processing and shut, which has reduced the total operable refining capacity in Europe and the United States.
In the UK, the only refinery in Scotland stopped processing crude oil in April, after 100 years of operation. In Germany, Shell is turning Wesseling from a refining site to a base-oil production center, while BP is seeking buyers for assets, including the refinery in Gelsenkirchen.
The closures in the U.S. include Valero’s plans to idle, restructure, or cease refining operations at its Benicia Refinery in California by the end of April 2026.
Phillips 66 announced the closure of a refinery in the Los Angeles area.
The Energy Information Administration (EIA) expects U.S. refinery capacity to be 17.9 million bpd at the end of 2025, about 3% less than at the beginning of this year, with LyondellBasell’s Houston oil refinery closing, and the Los Angeles refinery of Phillips 66 shutting down operations.
The other refineries are set to run at high rates in the summer to meet demand and capture increased refining margins.
But the rebound in margins could be short-lived, analysts say. Economic uncertainties and trade wars could depress demand later this year after peak season demand wanes.
By Tsvetana Paraskova for Oilprice.com
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