Global refining capacity fell in 2021 for first time in 30 years

Although global refinery throughputs rose to 79.8mn b/d in 4Q2021 – up 4.6mn b/d on a year ago, according to the latest International Energy Agency (IEA) Oil market report, global refining capacity fell in 2021, for the first time in 30 years, by 730,000 b/d, as new capacity was outweighed by closures.

In 2022, net additions are expected to amount to 1.2mn b/d. Over the last two years, about 900,000 b/d of refining capacity in Asia (excluding China) has been either shut in or scheduled to permanently close before the end of 2022, the IEA said.

Since the Covid-19 pandemic shook markets two years ago, this time round the surge created by Omicron is having a more muted impact on oil use. Oil demand has been stronger than expected in recent months and rose by 1.1mn b/d to 99mn b/d in 4Q2021.

Global demand is set for seasonal decline in 1Q2022, due to factors like teleworking and less air travel. However, the IEA anticipates that world oil demand will return to pre-Covid levels of 99.7mn b/d.

Supply disruptions and production shortfalls by some OPEC+ members are tempering growth expectations for 2022. In December, world oil supply rose by a modest 130,000 b/d to 98.6mn b/d, as outages in Libya and Ecuador, and a smaller than scheduled increase from OPEC+, wiped out much of the expected growth. The shortfall was mostly due to under-production in Nigeria, Angola and Malaysia, due to technical and operational issues, says the IEA report. Russia also pumped below its quota.

Nevertheless, world oil supply is forecast to grow sharply this year, with the US, Canada and Brazil set to pump at their highest ever annual levels. US oil output is forecast to rise by 1mn b/d on average to 177mn b/d, as operators respond to higher prices by putting more rigs to work. In addition, Ecuador, Libya and Nigeria are ramping up. Saudi Arabia and Russia could also set records if remaining OPEC+ cuts are fully unwound. In this case, global supply would soar by 6.2mn b/d on average in 2022.

World oil supply in 2022 has the potential for a Saudi-driven gain of 6.2mn b/d if OPEC+ fully unwinds its cuts. The IEA predicts that oil output from OPEC+ could rise by 4.4mn b/d in 2022. Non-OPEC+ growth of 1.8mn b/d will be led by the US.

Crude oil prices were hit by demand uncertainties in December 2021 before a vigorous post-holiday rebound. Brent Crude rose from an average of $74.01/b in December to $87.30/b on 18 January 2022, its highest level since 2014. ‘Robust demand, unscheduled supply outages and strong stock draws in December pushed benchmark oil prices to seven-year highs,’ says the report.