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By Peg Mackey and Simon Falush
LONDON May 14 Oil trading houses are poised to
gain more control of Europe's fuel supply as its refiners close,
and the shutdowns could have a significant impact on prices and
energy security, the West's energy agency said on Tuesday.
The International Energy Agency foresees a seismic shift in
global refining as countries such as India and Saudi Arabia
build new capacity.
The expansion of global refining capacity is likely to
outpace growth in demand and in crude supply, which increases
pressure on margins and puts plants in Europe at "particularly
high risk of closure", the agency said in its semi-annual report
on global oil supply and demand trends.
As more refiners shut down, opportunities will be created
for trading houses.
High maintenance costs and declining margins have led in
recent years to a consolidation in Europe's refining industry,
including four closures in 2012, putting regional capacity at
about 15 million barrels per day. So far this year, another
three closures have already been announced, the IEA said.
"Increased European reliance on trading houses and
third-party suppliers may also leave a growing share of European
supply in the hands of market participants with a different set
of incentives than those of refiners," the IEA said.
Trading houses Vitol and Gunvor bought three of five plants
from doomed refinery group Petroplus last year. The two other
refineries, Petit Couronne in France and Coryton in England,
"Whereas refiners have a clear interest in maximising
production and plant utilisation, traders have a different mix
of fixed assets, and their strategy and market behaviour thus
tend to respond to other signals, such as arbitrage
opportunities or market volatility," the agency said.
Refinery closures are likely to increase the continent's
reliance on product imports and storage terminals - especially
for jet fuel and gasoil - and lengthen the region's supply
routes, the IEA said.
"It is increasingly tough to make money in the European
refining sector. There is more value for trading houses, which
have better options for how and when to place the oil," said
Seth Kleinman, head of energy at Citigroup. "But that leaves a
question mark over the reliability of supply."
Increasing reliance on imports could make the market more
vulnerable to price fluctuations based on interregional trade
deals, rather than just supply and demand.
The cost of long-haul transport also could result in higher
spreads between prices in European markets and those in product
exporting countries, and price differentials between low-demand
and high-demand periods may widen to cover storage costs.
The North American oil supply revolution and the surge in
non-OPEC demand are redrawing the global refining map, the IEA
Refiners are moving closer to the wellhead, and non-OECD
markets and international products trade are growing.
(editing by Jane Baird)