As the first quarter’s results begin to roll in, it is already clear that Europe’s refiners have enjoyed a strong start to this year. But how long will the good times last?
In northwest Europe, reference margins for Hungary’s Mol, Poland’s Lotos and the Czech Republic’s Unipetrol are all up on the year. The story is the same in the Mediterranean region for Spain’s Repsol, while Portugal’s Galp yesterday upped its benchmark margin forecast for 2017 by 50¢/bl to $3/bl, following a strong first quarter. Total has also reported stronger first-quarter margins, as have BP and Finland’s Neste.
The oil market has been fixated on Opec of late, with newly-loquacious oil ministers’ every utterance pored over.
But the exporter body isn’t the only organisation with a key role to play in balancing the market. The People’s Bank of China is Opec’s mirror on the demand side, and the producer countries will be hoping it is up to the task.
BP, in its Energy Outlook published this week, said that all of the demand growth for oil in next 20 years comes from emerging markets, with China accounting for half.
The Middle Kingdom is already a black hole for crude, with storage being built and filled while global prices are low. Aggregate crude imports, apparent demand and refinery runs all hit record levels in December.
US President Donald Trump’s immigration wall and nebulous border tax plans are sparking a Mexican backlash likely to find expression in the country’s oil patch. US companies have a lot at stake.
The abrupt souring of bilateral relations coincides with Mexico’s historic opening of upstream, midstream and downstream sectors that had long been the exclusive domain of state-run Pemex. The dismantling of the company’s monopoly was already a lot to swallow for Mexicans nurtured on resource nationalism that was embodied by their much-diminished national champion. Trump’s blunt words threaten to persuade Mexicans that this sweeping reform path, quietly encouraged by Washington, is a misguided route to submission, as interpreted by the country’s emboldened political parties on the left.
US oil companies and providers of oil services and supplies are invested in the Mexican reform process, imperfect as it is. A whole host of opportunities from pipelines to product imports suddenly became available after the landmark reform was passed in 2014, and US firms were among the best placed to compete.
Trump’s confrontational approach will not directly short-circuit the energy reform. But it is compounding pressure on Mexico’s unpopular president Enrique Pena Nieto to defend his country with short-term measures, and unleashing emotions that will color the way the process is rolled out as his opponents position themselves ahead of 2018 elections.
It may be too late to expect that Trump’s constituents in the US business community will soften the new president’s approach toward Mexico. Even if they do, Trump’s harsh words are already uniting Mexicans in a way that could haunt Washington long after the mercurial real estate tycoon returns to his gilded tower.
The icy blast of the 2008 financial crisis, a high-cost base, fierce competition from new capacity in the Middle East and Asia, downward demand trends because of stagnant population growth and greater engine efficiency, perverse tax regimes, and the rolling thunder of environmental legislation. To survive as a refiner in Europe requires constant vigilance and frequent reinvention.
“All the people have complained to me that it was very hard to develop a project in such conditions. But… today’s weather is just perfect – so, I do not understand why you have issues,” Total chief executive Patrick Pouyanne joked at the inauguration ceremony of the Shetland gas plant (SGP) yesterday. It was Pouyanne’s first visit to the Shetlands, the UK’s northernmost inhabited islands, more than 160km north of mainland Scotland.