The demand in oil drops – leading to shutdown of refineries

An oil refinery

As the oil market is beginning to collapse. (At relief to environmentalists around the globe), an increasing number of refineries around the world are curtailing operations or shutting down entirely as the oil market diminishes.

Oil prices have dropped considerably to their lowest level in almost 20 years. Typically, falling oil prices are a good outcome for these refiners because they then buy crude oil much cheaper and process it into gasoline, diesel and jet fuel. These will then be sold at much higher prices, therefor putting the profit in their back pocket.

The impact of low oil prices means us (the consumer) tend to buy more and subsequently the margin of profit for refiners tends to widen when crude oil becomes oversupplied.

However, the world is currently in the midst of dual supply and demand shock due to the vast volumes of people being told to stay indoors. Too much drilling in these times has produced a substantial surplus.

The coronavirus pandemic has led to a historic drop in consumption. This could pose huge threat to the oil industry and a massive advantage to renewable energies after the crisis. (Lets hope there is an after).

Oil demand is falling at an exponential rate and we could be looking at drops as big as 20%.

According to the International Energy Agency it is without doubt the largest decline in consumption ever recorded.

Is this a good time to invest in oil? Environmentalists would disagree.

75% is the current number in which jet fuel consumption around the world has plunged. Shockingly, average retail gasoline prices in the U.S. are dropping below $2 per gallon in some areas. They are likely to continue to drop.

KENS 5 on twitter said “If oil continues to sell at such a low price, some of those companies are going to have severe financial issues trying to survive.”

Even worse, margins fell into negative territory, meaning that most refiners were losing money. A painful financial squeeze is what most refiners are facing.

Brian Mandell, an executive with Phillips 66, said on a March 24 phone call with investors that “We’re seeing gasoline cracks at negative margins. We’re seeing jet cracks even worse.”

*Cracks are the cost of buying crude oil and then selling the refined product.

Credit: Nick Cunningham

Full article: ECOWATCH

Author: The Figure Head

Bringing you all the latest environmental news.

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