Oil Prices Stabilize, but Weak Refinery Margins Pose Threat

Oil prices have experienced a moment of stability after a recent drop, but weak refinery margins continue to pose a threat to the industry.

On Thursday, Brent crude increased by 18 cents to $77.87 per barrel, while U.S. West Texas Intermediate crude rose by 12 cents to $74.42 per barrel. The price stabilization was attributed to Russian Deputy Prime Alexander Novak’s statement that oil markets are balanced.

Despite the good news, analysts warn that weak refinery margins are still a major contributing factor to the recent decline in oil prices. Tamas Varga, an oil broker at PVM, noted that heating oil and gasoil are possible culprits for the weak refinery margins. In addition, Russia’s increased exports of refined products have made inventory depletion even more challenging.

This has raised concerns that falling refinery profit margins could lead to cuts in runs and a further reduction in crude demand. Ole Hansen, head of commodity strategy at Saxo Bank, warns that the overall negative bias will continue until refinery margins show signs of stabilizing.

The flattening of backwardation in the Brent futures curve, which typically indicates tight supply, also poses a threat to the stability of oil prices.

The recent positive news of OPEC+ cutting production targets was a welcome development for the industry, but the weak refinery margins remain a significant concern.

The stabilization of oil prices on Thursday is a step in the right direction, but more needs to be done to address the underlying issues in the industry.

As markets continue to seek direction, the first quarterly print of Eurozone GDP growth data is due on Friday, which could impact monetary policy decisions by the European Central Bank when it meets on May 4.

The industry will be closely watching these developments, as they seek to navigate the challenges of weak refinery margins and fluctuating oil prices.