At this time of year, companies roll out their annual results.
Although the numbers change from year to year, there are some things about the results of integrated oil and companies that can be virtually guaranteed.
There will usually be a few paragraphs about how exploration and production is buoyant. The petrochemical business will be reported as booming or struggling, depending on the industry's notorious cyclic behavior.
And tucked away somewhere will be a terse comment along the lines of "refinery margins were low." But one analyst reckons next year's figures might make a welcome change for refiners in Europe.
Enerfinance Consulting Services SA, Paris, predicts European refinery margins will pick up after first quarter 1997 and will gather strength into first quarter 1998.
Contrary to current wisdom among refiners, Enerfinance does not believe European refining capacity needs to be cut by 50-60 million metric tons/year from the current total of more than 700 million metric tons/year.
Equilibrium
"However, the question of equilibrium," said Enerfinance, "notably on a regional level, is paramount. Germany and southern France are the regions with the greatest disequilibrium."
The analyst reckons it is unlikely that refining margins will stay as high as they were in fourth quarter 1996, at $2.70/bbl. However, gasoline demand should be firmer than it has been for the last 18 months.
The surplus of gasoline production in Europe will still be large, said Enerfinance, and the crude slate will remain light.
A number of refiners will be obliged to increase their intake of light crude oil in order to meet new, tighter limits for sulfur content in fuels.
"Yet one can reasonably expect margins to stay at higher levels than the lows recorded in 1995," said Enerfinance, "as these imbalances should be less pronounced."
Crude slate
Also, in the short term, the return of Iraqi oil to the market and rising North Sea output will increase the amount of heavy crude processed in Europe. This will need to be compensated by increased imports of light crudes.
In the medium term, Enerfinance expects Europe's crude slate to get heavier as more heavy crude becomes available in the region and particularly if there is an increase in supplies from Russia.
"This should increase the price differential between heavy fuel oil and gasoline," said Enerfinance. "Also, demand for heavy fuel oil should continue to drop, which will force topping/reforming refineries to decrease their processing levels."
The analyst predicts an "average" Northwest European refinery, with a fluid catalytic cracker or visbreaker, will see a margin of $1.60-2/bbl this year and in first quarter 1998, compared with a low of $1.25/bbl in 1995.
Normally I do not attend press conferences for company results, but if Enerfinance's prediction comes true, I may go to a few. It would be worth it just to witness an optimistic presentation by a refining director.
Copyright 1997 Oil & Gas Journal. All Rights Reserved.
