Oil price to remain high while refining crunch persists: analyst

Dubai (Platts)--4May2005

While global oil demands has increased by 4.5-mil b/d since 2002, the world's
refining capacity has increased by only 1.3-mil b/d and with refining runs
currently at around 95% there is no immediate scope for further improvement in
refining capacity, the Abu Dhabi National Oil Company's chief analyst said in
a report. 

"It means that the world consumption will outpace refining capacity
substantially particularly in the fourth quarter this year, when a demand of
around 86-mil b/d must be met with a capacity of 83-mil b/d," said Ali
al-Yabhouni, head of the marketing research and analysis department at ADNOC.
Al-Yabhouni put OPEC's current production at 29.5-mil b/d, some 2.3-mil b/d
above the 2003 average. He said that while the industry could build stocks in
the second and third quarters, when demand is traditionally weak, storage
capacity posed problems in developing countries.

While refining margins worldwide had soared, particularly for refineries
running sour crude, some refiners are reluctant to invest more in refining
capacity, said al-Yabhouni, adding that OPEC producers like Saudi Arabia and
Kuwait had stepped in to help with offers to invest in export-oriented
refineries. 

Meanwhile, Asia is expected to add 700,000 b/d of refining capacity by end
2005 but demand is increasing at a higher pace. Since 2002 global catalytic
cracking and hydrotreating capacities have risen by only 1.34-mil b/d and
4.24-mil b/d, respectively. Due to the tight upgrading capacity, sweet/sour
and light/heavy differentials have soared with US sour grade Mars trading at a
discount of $8/bbl to sweet benchmark West Texas intermediate and in Asia,
sweet Tapis commands a premium of more than $10/bbl the sour Dubai marker.
"The situation is unlikely to change in the near future. Because OPEC's crude
oil is normally sour and heavy, some grades from the group are being sold at
less than $40/bbl despite US benchmark WTI's prices of more than $55/bbl,"
al-Yabhouni said.

This story was originally published in Platts Global Alert
http://www.globalalert.platts.com

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