Changes on the fuel market in 2021

The active policy of OPEC+ countries to monitor the supply-demand situation in the market on an ongoing basis was significant for market balancing. In July, the member countries agreed to increase their output by 400,000 b/d every month from August to December.

Also of significance is the fact that since September last year, the profitability of using oil relative to other inputs for power generation has increased as a result of high prices of natural gas and high levels of global inflation, which prompts investors to increase investments in energy commodities.

In 2021, the average Urals/Brent crude differential was USD -1.83/bbl, compared with USD -0.6/bbl in 2020. The price of the Rebco blend was rising at a slower pace than the price of Brent, due, among other things, to growing supplies from Russia, as the OPEC + policy loosened. An increase in loading programmes at Russian export ports was observed as of February. In October, the loading programme reached its highest level since the beginning of the pandemic, at 7.41 million tons, with the autumn maintenance shutdown in Russia contributing to the peak. The demand for Urals crude was affected on the one hand by the high interest in sweet crude grades in the third quarter (rising costs of hydrogen production due to high prices of natural gas), and then rising crack spreads for medium fractions turned the market’s attention towards medium and high acidity crudes

Source: In-house analysis based on Refinitiv data

In 2021, natural gas prices were very volatile. They increased significantly year on year (at the UK National Balancing Point, the average price during the year grew by approximately 390%, to 88.1 USD/boe), a result of several factors:

• increased demand for the commodity (economic recovery);
• low level of filling of storage facilities in Europe (inventories at the beginning of October 2021, i.e. start of the heating season, were 18.1% lower year on year);
• market speculation;
• reduced supplies by Russia (at least 5.5% less than in 2020), which took steps towards certification of the Nord Stream 2 pipeline, despite the country’s record-high gas output (514.8 bcm in 2021, i.e., 62.2 bcm more than in 2020);
• lower production of natural gas in Norway and the United Kingdom (effect of maintenance shutdowns on gas fields);
• lower LNG supplies to Europe (10% less than in 2020 as the Asia-Pacific market was favoured).

BRAK

Source: In-house analysis based on Refinitiv data

Global prices of crude oil are usually denominated in US dollars. Therefore, from the perspective of refining companies, crude prices are as important as the exchange rates of their local currencies against USD. In 2021, the Polish currency appreciated slightly against the US dollar, i.e. the average USD/PLN exchange rate fell by 0.9%, from PLN 3.8978 in 2020 to PLN 3.8647 in 2021. However, since November 2021 the exchange rate has stayed at levels above 4 USD/PLN.

Source: In-house analysis based on National Bank of Poland data.

In addition, oil and gas prices may be affected by factors such as a decline in demand (reflecting an economic downturn), geopolitical uncertainties and armed conflicts in oil extraction areas, import and export restrictions, weather conditions and natural disasters.

The smallest increase was recorded in Asia, where in December 2021 the utilisation of local refineries’ capacities was 2 p.p. higher year on year. In addition, refineries are becoming increasingly complex, with greater secondary processing capacities.

This long-term trend has been caused by the combination of older, simpler refineries being closed down, existing plants being extended through the addition of secondary processing capacities, and building of new, highly complex plants. This is due to growing global demand for light and ‘clean’ products, coupled with a gradual decline in demand for residual fuel oil. Moreover, these changes result from increasingly stricter fuel quality legislation.

Since 2012, many refineries, with a total capacity of about 2 million b/d, have been closed down across Europe. There are more than 100 refining plants in Europe with different conversion levels, but the profitability of some of them (taking into account the prevailing market conditions) is low, and as a result some plants have been or will be closed. A characteristic trend in the prevailing conditions is also the conversion of plants into biorefineries.

With plans to achieve zero-carbon economies accelerating, the projected decline in fuel demand, the growing importance of environmental issues and the use of other energy sources, it is likely that global refining capacities will decline and more plants will be shut down.

Source: In-house analysis based on OPEC data.

China was one of the few countries which increased throughput in 2021 relative to 2019. The country strengthened its position in the global refining market by launching more high-conversion capacities, thus putting pressure on traditional refinery operations in developed countries. Moreover, as shown by the IMF data, the country has been much less economically affected by the COVID-19 pandemic compared with most countries in the world, with GDP growth of 2.3% in 2020 and 8% in 2021 (the global average rates were -3.1% and 5.9%, respectively).

In 2021, the volume of oil processed in Poland was 24.8 million tonnes, i.e., 3.9% less year on year.

In-house analysis based on Polish Organisation of Oil Industry and Trade (POPiHN) data.

In 2021, crack spreads, i.e., differences between the product prices and the reference price of crude oil, were as follows:

Source: In-house analysis based on Refinitiv data