French refinery strikes are timed to hit hard

(Reuters) - Strike action and unplanned maintenance has taken offline more than 60% of France's refining capacity - or 740,000 bpd - forcing the country to import more when global supply uncertainty has increased the cost.

A walkout by hard-left CGT trade union members at TotalEnergies has disrupted operations at two refineries and two storage facilities, and two Exxon Mobil refineries have faced similar problems since Sept 20.

WHY IS SO MUCH CAPACITY OFFLINE?

The week-long strike at TotalEnergies is part of broader action across the French energy sector as workers push for higher pay to counter inflation.

The strikes have shut down production at TotalEnergies' 240,000 bpd Gonfreville refinery and blocked deliveries at its 119,000 bpd Feyzin refinery, which was already offline following a leak.

The outages have increased the impact of what is known as the maintenance season in Europe, which takes place after the peak of gasoline consumption in the summer driving season and before winter heating demand.

Some 1.5 million bpd are expected to be offline across Europe in October, tightening already-strained supplies, particularly of middle distillates.

Middle distillates such as diesel and gas oil are primarily used in freight transport, manufacturing, farming, mining, and oil and gas extraction.

"(The strikes come) at exactly the wrong time, global middle distillate onshore stocks are pretty tight... and increasing that deficit will send prices higher," Eugene Lindell, refining and products market analyst at FGE, said.

WHAT ABOUT RESERVES?

France has enough strategic reserves of oil products to cover average demand for about three months, the UFIP petroleum industry body estimates.

TotalEnergies said it had increased imports and had stocks "that could last between 20 days and a month," in addition to the strategic stocks held by France.

Some TotalEnergies fuel stations have run dry in recent days, including in areas surrounding refineries and fuel depots.

The energy group said that was because a price cut introduced on Sept. 1 to help customers deal with inflation had resulted in a sharp increase in sales.

Analysts do not expect widespread shortages at pumps but the refinery outages are reducing already-low stock levels.

France's diesel inventories stood at 60 million barrels in June, almost 15 million below the five-year average for that month, according to Energy Aspects.

"We have downgraded our estimations of stocks in the region by 4 million barrels for both September and October," said James Burleigh at Wood Mackenzie.

IS FRANCE RAISING IMPORTS OF REFINED PRODUCTS?

Yes.

France usually imports about 50% of its diesel needs yearly. Imports generally increase going into the fourth quarter due to refinery maintenance schedules.

But in the week to Oct. 2, imports of oil products rose 40% week-on-week to cover the production shortfall caused by the strike, data from energy analytics firm Vortexa showed.

French suppliers are buying diesel cargoes on a ship-to-ship transfer basis from record numbers of Very Large Crude Carriers (VLCCs) coming into Europe, Wood Mackenzie said.

IMPACT ON FUEL PRICES?

Uncertainty over how long the French strikes will last has lifted European diesel spreads relative to crude <ULSD10-B-ARA> just as Western sanctions against Russia are driving prices still higher.

The European Union is trying to source around 600,000 bpd of diesel to replace Russian fuel ahead of a February ban.

Early indications show that growing volumes of diesel from the Middle East are pointed toward Europe, Vortexa senior market analyst Pamela Munger said.

Meanwhile, lower-than-normal French nuclear output may also spur diesel demand in France.

"It is likely France will have a higher call on diesel for power generation," Munger said. (Reporting by Forrest Crellin and Benjamin Mallet in Paris and Rowena Edwards in London; Editing by Richard Lough and Barbara Lewis)

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