Outlook bleak for Europe, US refiners at end of dismal year
By SARAH KENT and JENNY GROSS
A dismal year for the European and US refining market is set to end on a sour note as profit margins are squeezed by high oil prices and lackluster demand for products.
European refiners, in particular, are headed for a bleak start to the new year, as the region's poor economic performance and unseasonably warm weather eat into demand.
For much of the year European refiners have struggled because products like gasoline, traditionally seen as their bread and butter, have remained unprofitable.
"There has been very slow demand all over the place due to weather and the economic situation," a products trader for a major refining company said. 
European refiners would "definitely" continue to reduce production going into 2012, as refining margins are looking bleak, the trader added.
According to the International Energy Agency (IEA), European refining margins, or profits from processing crude into oil products, turned negative in June and then again in September, leaving many refineries operating at a loss.
Poor refining economics have forced many European refineries to reduce their output this year, while others have extended periods of maintenance.
European refining throughput in September fell by about 360,000 bpd, according to the most recent data available from the IEA.
Refiners, including Europe's largest independent refinery Petroplus, have trimmed their production of oil products as profit from processing crude into oil products has slipped this year.
Eni's Venice refinery has also cut runs, according to the IEA.
And now, even the profit margins for distillates such as gasoil and diesel - among the few products that European refiners have been able to make money on this year - are falling.
"At this point, it's only the gasoil and diesel crack holding up overall refining margins--gasoline and fuel oil cracks are really weak. So we're relying on distillate cracks to push higher, though with more refineries coming back from maintenance cracks aren't likely to strengthen much," said James Zhang, strategist at Standard Bank.
The crack is how refiners refer to the profit they can make from refining crude into oil products.
The fall in profits on middle distillates come as more and more refineries return to production after the autumn maintenance season, helping to boost the overall levels of distillate supply.
Meanwhile, poor demand for oil products is weighing on refiners' profits, and analysts say that given the way the European economy seems to be going, there is more pain to come for refiners.
"Refineries will be closing if global slowdown continues and product demand in Europe wanes," said Rob Montefusco, senior commodity broker at Sucden Financial.
Refiners in the US are also set to suffer from Europe's malaise.
"The US is turning more and more into an export market, so if we have poor demand in Europe, then that will impact US margins," said Olivier Jakob, managing director of Swiss consultancy Petromatrix.
According to the US Energy Information Administration (EIA), about 25% of America's product exports travel to Europe. About 750,000 bpd - a record high number - were shipped trans-atlantically in September, the latest data from the EIA show.
While many refiners in the US, particularly in the Midwest, have benefited from relatively cheap oil this year, refineries elsewhere in the country are operating in an altogether different environment.
This year has seen a spate of closures on the east coast, with ConocoPhillips shutting its Trainer refinery in Pennsylvania and Sunoco bringing forward plans to shut its Marcus Hook refinery.
The company also has plans to idle a second refinery in Philadelphia in the new year.
Refiners on the Gulf Coast are particularly vulnerable to weakening European demand, Petromatrix's Jakob said, predicting run cuts if the current demand picture persists.
Demand for products in Asia, on the other hand, has been comparatively robust.
Asia is seen as one of the main centers of demand growth in coming years but European refineries in particular have had a hard time competing with new, high tech local refineries built to meet this thirst for oil products.
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