Scorching Heat Curbs Gas Output, Raises Prices
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Record-breaking summer heat is forcing fuelmakers to cut back operations, just as dwindling supplies are causing gasoline prices to surge around the world.
The hottest-ever June and July prompted refiners to curtail oil processing by at least 2% globally as long stretches of triple-digit heat posed a threat to operations, according to Vikas Dwivedi, a global oil and gas strategist for Macquarie Group.
Excessive heat, associated with deferred maintenance in the past, has spurred an unusual number of refinery breakdowns this year, when fuel stockpiles are already low. This has in part propelled gasoline prices in the U.S. to the highest level since November. High-temperature forecasts into August could keep U.S. gasoline makers from running all-out for the last stretch of the summer driving season, dimming hopes for relief at the pump.
U.S. refineries are struggling to return to the peak utilization rate of 95.8% seen in early June. Since May, at least four facilities reported fires while another seven had to take units down due to power outages and unplanned repairs, according to data compiled by Bloomberg. “The ability to cool the tower overhead can become a constraint at high ambient temperatures,” Dwivedi said in a report.
Cooling capacity issues have also dogged European refineries struggling to process lighter crudes in the aftermath of supply cuts from Saudi Arabia and Russia. French refiner TotalEnergies SE and Italian fuelmaker Saras SPA recently lamented the dampening impact of baking temperatures. “Refineries do not like hot weather,” TotalEnergies SE CEO Patrick Pouyanne said on an earnings call.
A continued contraction of the manufacturing sector has also led European refiners to hold back.
In July, global fuelmakers processed 82.5 million barrels of oil daily, down from an earlier estimate of 84 million barrels, Macquarie data shows. Refineries may still hit the target in August or early September as new plants in Asia and the Middle East ramp up, according to Dwivedi. But this last attempt to boost fuel production in the final weeks of the summer may be cut short by the upcoming fall turnaround season.
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