Oil markets have to brace for more refining capacity coming on stream in the next two years than in any similar period over the previous four and half decades, says Royal Bank of Canada (TSX:RY).
“This has implications for both product cracks and crude prices,” it adds.
“We see 1.5 mb/d of new global refining capacity additions or expansions slated to come online this year and another 2.4 mb/d to follow in 2024.
“This compares to net new capacity additions over the past 45 years averaging some 580 kb/d annually, with the biggest two years of consecutive additions summing to 2.03 mb/d, which came in 1978.”
For prices, RBC sees a short-term boost “as refiners will buy barrels to feed runs and add to refinery storage”.
“The subsequent refinery capacity ramp will alleviate the current product inventory tightness and cracks will likely re-rate back to midcycle economics over the next 12–18 months from current lofty levels.”