Crude and Refined Oil Products Markets: Transient Shocks or Secular Change?

About the Project:

The ramifications of the way changing patterns of supply and demand are reshaping crude and refined product flows and the extent to which these changes represent a short-term deviation or secular change from the norm.

The global market for crude oil and refined products is rapidly changing. The US surge of light tight oil production resulting from hydraulic fracturing of shale formations is one factor. But other less publicly visible trends have equally far-reaching consequences. Europe’s oil refining industry, already suffering from overcapacity and its lack of complexity, risks being squeezed by investments in upgrading capacity in Russian refineries, additions of new, complex refining capacity in the Middle East, and the prospects of product flows from US East Coast refineries. China and other parts of Asia have also added flexible, deep conversion refineries capable of meeting the most demanding product specifications.

Low cost shale gas in the US is fundamentally altering the comparative advantage of regional petrochemical industries. Naphtha-feedstock based plants are losing competitiveness to those based on natural gas-derived feedstocks. Crude oil trade flows are impacted both by the extraordinary turnaround of US refined product exports and by expansions of Middle East refining that may replace crude oil exports with refined oil product exports.