European refiners see glut lasting to late-2016
Mediterranean-region refiners could start receiving an extra 450,000-500,000 b/d of Iranian crude next year. Currently, Iranian flows into the region are limited to around 100,000 b/d purchased by Turkey. EU and US sanctions on Iran could be lifted as soon as the first quarter 2016, and a substantial rise in Iranian exports may follow in the second quarter. Iran could gradually raise exports by as much as 1.2mn b/d in the second half of 2016, of which around 40pc would be absorbed by European refiners.
A ramp-up of Iranian output next year will worsen the existing global crude glut and could delay the rebalancing of the market to 2017. Against a backdrop of a well-supplied crude market, some Mediterranean-region refiners are enjoying their strongest margins in 10 years. Low feedstock costs — in the form of crude prices — have been complemented by a decline in European refining capacity. During 2009-15, around 2.35mn b/d of refining capacity in Europe was taken permanently offline through conversions or closures.
The drop in global upstream investment in the past year could result in a medium-term supply crunch, laying the groundwork for an oil price recovery. But in the interim, output from both Opec and non-Opec countries remains plentiful, pushing commercial inventories to record highs and keeping the global market well-supplied despite the slowdown in US production growth.
While crude prices are likely to remain under pressure in the coming 6-12 months, geopolitical factors could lend support. Iran, Iraq and Libya are expected to add cumulative output of no more than 3mn b/d by 2020, while disruptions in Nigeria are also likely to impact global supplies.