Global oil demand is set to surge in the short run as refining capacity hits a record, yet the gains may not hold as a flood of fuel gluts the market, eroding profit margins and eventually forcing refiners to cut runs and crude orders.
Data on Thomson Reuters Eikon show that available global capacity to refine oil into fuels like gasoline, diesel, or jet and shipping fuel, will reach 101.8 million barrels per day in August, the highest on record, and up from about 97.25 million bpd in March.
Of this capacity, at least 80 million to 85 million bpd will be utilized over the upcoming northern hemisphere summer months, several refiners and oil traders estimated, triggering strong demand for crude oil as a feedstock, pushing up prices.
The refining surge is occurring just as supply disruptions, including Canadian wildfires, Nigerian sabotage and output cuts in the US, Venezuela and Asia, tighten crude supplies.
With disruptions amounting to 2.5 million bpd, global crude output is likely below 95 million bpd and producers will be taxed to meet refining demand because of competing purchases for stockpiling, such as China’s and India’s strategic petroleum reserves.
Meanwhile, there are ongoing economic worries, especially in Asia, where most oil demand growth has occurred over the past years.
Still, the overall installed capacity of 102.25 million bpd will present a new base layer of demand for crude that should help support oil prices in the long run.
