Petroleum refiners worldwide experienced a significant decline in refining margins in October, marking some of the largest month-to-month decreases since 2010. Despite this, global refining crude throughputs are expected to reach record levels in December, according to the International Energy Agency (IEA) in its latest monthly Oil Market Report.

Margins Drop Across Regions

The IEA reported that refining margins on the U.S. Gulf Coast fell by approximately $11 per barrel (bbl) compared to September levels. In Europe, margins experienced a decline of $7 to $9 per bbl, while in Singapore, the drop ranged between $4 and $6 per bbl.

Unprecedented Decline Since 2010

The agency noted that, since 2010, only July and November 2022 witnessed larger month-to-month declines across most markets.

Factors Impacting Margins

According to analysts from the IEA, the weaker margin environment was primarily driven by the collapse in gasoline cracks in late September. However, they also highlighted that the decline in middle distillate cracks, amounting to $5-6 per bbl, further compounded the impact of the gasoline weakness.

Gulf Coast's Decline Explained

The steep decrease in gasoline margins on the Gulf Coast can be attributed to U.S. refineries processing a higher percentage yield of gasoline compared to other regions.

Gasoline Yield Disparity

In 2023 thus far, U.S. refiners have observed an average gasoline yield of 43%. In contrast, Europe and the Singapore region have only maintained an average yield of 21% year-to-date.

Overall, while refining margins faced a notable decline in October, refineries are anticipated to amp up crude throughputs globally to unprecedented levels in December.

Gasoline Cracks Hit New Low

The gasoline refining crack plunged to less than $7/bbl in the Gulf Coast earlier this month, reaching a level not seen since late 2020. This significant drop is well below the third-quarter average of $32.50/bbl for this year.

Shift in Refineries' Strategy

As a result of this decline, refineries are likely to adjust their yields in favor of gasoil/diesel. This shift may further impact the VGO premiums to crude, according to analysts from the International Energy Agency (IEA).

Increase in Refining Throughputs

Despite the challenging refining margins, the IEA projects global refining crude throughputs to reach 84.2 million b/d by December, marking a new annual peak. This estimate significantly exceeds the average of 81 million b/d observed in October.

Revised Forecasts

The IEA's latest forecasts indicate that crude runs will average 82.6 million b/d in 2023 and 83.6 million b/d in 2024. These figures are approximately 160,000 b/d higher than the agency's previous estimates.