What's Happening?
Global refining margins have reached multi-year highs in November, driven by sanctions on Russia and refinery outages, according to LSEG data. The disruptions, including Ukrainian drone attacks on Russian
oil refineries and pipeline closures, have led to plant shutdowns in the U.S. and Europe. Maintenance issues at Nigeria's Dangote refinery and outages in Asia and the Middle East have further strained the market. Despite expectations of oversupply, refined fuel prices remain supported due to strong margins. Analysts suggest that the refining squeeze will persist unless new plants are built in Western economies, which is unlikely. European diesel margins have hit their highest since September 2023, and the International Energy Agency has raised its forecast for European refining throughput due to strong margins.
Why It's Important?
The surge in global oil refining profits highlights the impact of geopolitical tensions and infrastructure challenges on the energy market. The strong margins provide oil companies with a financial windfall, boosting their earnings despite earlier warnings of a challenging year for refining. The situation underscores the vulnerability of global energy supply chains to political and operational disruptions. The persistent structural shortage of diesel in Europe exacerbates import requirements, affecting regional energy security. The high margins incentivize refineries to ramp up production, potentially stabilizing supply but also reflecting the need for strategic investments in refining capacity.
