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Aramco says its oil refineries are running flat out
Crude prices are down, but fuel prices have remained elevated
Aramco said its higher downstream earnings were mainly driven by stronger refining margins. (Cristobal Olivares/Bloomberg)
Key Takeaways:
- Saudi Aramco said Aug. 4 that global refineries outside conflict zones are operating near maximum capacity, leaving little buffer against fuel supply disruptions.
- Fuel prices have remained elevated as Middle East conflict and Ukrainian strikes on Russian energy facilities tightened refining capacity and boosted margins.
- Aramco CEO Amin Nasser said strong refining margins could persist through the second half and warned major refinery outages could further strain supplies.
Refineries outside of conflict zones are running at full tilt across the world and there are few shock absorbers left in the system to protect against higher fuel prices, the world’s biggest oil company Saudi Aramco said.
A combination of war in the Middle East and Ukrainian strikes on Russian energy facilities has sent fuel prices surging in recent months. The attacks are forcing some plants offline and pushing those that can to run at maximum capacity. Europe’s diesel benchmark is trading north of $150 a barrel, while average retail gasoline prices in the U.S. remain above the $4-a-gallon pain point.
“The global refining system is stretched heavily as refineries are operating at near maximum utilization rates,” Aramco CEO Amin Nasser said on a conference call with reporters Aug. 4. “This has clearly left the system with little shock absorbers or buffers.”
The pressure on fuel prices is a boon for the world’s biggest producers, who stand to make billions of dollars, while invoking the ire of U.S. President Donald Trump and posing a headache for central bankers. Crude prices are down dramatically from their peak earlier this year, but fuel prices have remained elevated.
On Aug. 4, Aramco said its higher downstream earnings were mainly driven by stronger refining margins. Western oil majors including BP Plc, ExxonMobil Holdings Corp. and Chevron Corp. have also reported higher earnings in part thanks to the profits available from turning crude into fuel.
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Woods
Exxon CEO Darren Woods said last week he’d never seen as little available refinery capacity relative to global demand as there is currently. Aramco’s Nasser said that margins could remain exceptionally strong throughout the second half of the year.
With refiners producing flat out to meet demand and reap gains from higher margins, buyers are at risk of additional interruptions to the fragile system, Nasser said.
“If refineries were to suffer any major unplanned or prolonged shutdown, the global energy supply system could face more severe pressure,” Nasser said.
