European Crude Refiners Set for Strong 2016

European Crude Refiners Set for Strong 2016European Crude Refiners Set for Strong 2016

European oil refiners are set for another good year in 2016, helped by strong demand and a battle among crude producers for market share, the chief executive of Finnish refiner Neste said.

The state-controlled company, which has two traditional refineries in Finland as well as renewable refineries in Singapore and Rotterdam, last month reported a 47% rise in quarterly core profit helped by high European refining margins and favorable foreign exchange rates, Reuters reported.

“Looking at next year, the demand for gasoline remains strong, and inventories are relatively low. We do see that next year will be another good year, perhaps not as strong margins as this year, but a good year,” Matti Lievonen said.

He noted refining margins had held up in the fourth quarter.

“Normally in oil products, the demand is strongest in the second and third quarter because of the driving season. The fourth quarter is usually worse, but now it is good too. It tells (us) about inventory levels in the gasoline side as the gasoline (margin) has remained high.”

Neste buys most of its crude from neighboring Russia, which has traditionally dominated the European market. But this year, Saudi Arabia has sold crude to Polish and Swedish refiners, while Iraq has stepped up business in the Mediterranean Sea.

“We also use crude from the North Sea, Africa, wherever we get the best deal,” Lievonen said, adding that Neste had not used Saudi oil yet.

He said refiners were benefitting as producers battle for market share.

“It’s a zero-sum game ... If oil is being imported here, the importers must lower prices ... One (customer) must not use every producer to get the advantage.”

Neste has lately shifted more focus to renewable diesel and 30% of profits in the first nine months of the year came from biofuels. It makes 70% of its renewable diesel from waste and feedstock residues, such as animal fats, and aims to increase biofuel capacity.

The company has benefitted in the past from biofuel tax breaks in the United States, and such a credit could be repeated for 2015 retroactively by the end of the year.

“We have no information whether it comes back ... the local industry seems to be expecting it to come back because they produce a lot, unprofitably,” Lievonen said.