Too much oil, too little diesel
Western Texas Intermediate crude oil has been hovering over the mid-teen level after settling at negative 37 dollars per barrel the day before the May expiry. Covid-19 has erased demand for crude, and the excess supply of crude has filled up all storages, causing traders and producers to pay money to offload their crude.
Since then, some wells in the US have begun shut-ins. Refiners have prolonged their spring maintenance most likely for the IMO 2020 standard but also to wind down their production given the collapse in the refined product price and demand. Indeed, with air and ground travel significantly reduced, the refining margin at some refiners has turned negative as well.
However, another problem might emerge soon- the world will have too much crude oil but too little diesel. The collapse in gasoline and jet fuel demand makes it difficult to produce enough gasoil (diesel) when the product inventories for unwanted fuels limit storage capacity. Limitations on pipeline flow restrict the availability of critical crude oil feedstock and are additional obstacles to higher levels of refinery utilization. Across the board, most refining margins have turned negative because of unwanted gasoline and jet fuel products. And, If refinery utilization is reduced much below 70% let alone 60% overall refinery operations might be uneconomic, and more refinery units and whole…