By OGJ editors
HOUSTON, May 15 -- Refinery construction oriented to gasoline in a market needing distillate is lifting the premium for light crude and contributing to market instability, says the Organization of Petroleum Exporting Countries.
In its May Monthly Oil Market Report, OPEC says global refinery construction during 2000-07 favored conversion capacity associated with gasoline while demand growth for the product was less than half that of distillate.
During this period, demand for distillate increased by 5.2 million b/d while that for gasoline rose by 2 million b/d and use of fuel oil declined.
At the same time, refiners added 1.2 million b/d of fluid catalytic cracking and coking capacity, associated with gasoline, but only 700,000 b/d of hydrocracking capacity, related to distillate.
Recently, demand for distillate has surged because of economic resilience in developing countries and the increased use of diesel generators, OPEC says. With insufficient distillate-oriented conversion capacity in place, refiners must rely on increased runs of light crude.
The result, OPEC says, is a widening price differential between light and heavy crude grades. The difference in price between heavy Maya crude and West Texas Intermediate, for example, has grown from about $8/bbl in June 2007 to more than $20/bbl at the beginning of May.
"The persistent mismatch between the product demand pattern and the refinery configuration has focused further upward pressure on light crude prices," OPEC says. "Downstream constraints are continuing to contribute to the high risk premium for these grades, leaving the market increasingly sensitive to any disruption in light crude supplies."