European oil refining margins decline, contrary to the global trend.

European oil refining margins have fallen into negative territory, trailing behind the stronger margins in Asia and the U.S. This is due to heightened competition for crude from Asian buyers amid the Iran conflict, which is increasing costs, even as fuel prices reach all-time highs, according to IEA data and trade sources.

In the week starting April 6, Northwest European light sweet hydroskimming margins averaged minus $6.45 a barrel, as reported by the IEA in its monthly update based on Argus Media data. Medium sour cracking margins were also negative, although light sweet cracking margins, while still positive, have weakened considerably. This margin decline is a result of rising crude prices hitting record highs because of disruptions in Middle Eastern supplies due to the war in Iran. Analysts noted that this situation indicates that many refineries are operating at a loss, potentially leading some facilities to reduce crude processing into fuels.

Simpler European refineries, lacking the capability to produce more valuable products like jet fuel, may need to cut back on operations if margins remain tight, although no widespread reductions have been observed so far, according to trading sources. Neil Crosby, an analyst at Sparta Commodities, suggested that Europe is likely to reduce utilization, possibly by up to 500,000 barrels per day.

In contrast, heavy sour coking margins in the U.S. Gulf improved last week compared to March averages, while medium sour cracking margins in Singapore also showed strength relative to their March figures. The margin decline in Europe reflects rising crude costs prompted by aggressive competition from Asian refiners for cargoes, alongside increasing operating expenses like electricity and natural gas. A trading source at a European refinery remarked that during crises, fuel cracks initially rise, but as crude prices and costs adjust, margins suffer. He noted their margin fell from around $30 a barrel in the first week of the conflict to just over $4 now.

This margin pressure follows a global surge in March, when European margins reached record levels. According to the IEA, margins in Singapore in March were approximately 14 times higher than in February, while in Northwest Europe, light sweet hydroskimming margins more than quadrupled month-over-month, reaching $15.20 a barrel. Some refiners even postponed scheduled maintenance to capitalize on the increased fuel prices, such as Italy's 300,000 barrel per day Sarroch refinery, which delayed a maintenance shutdown from late March to mid-May, as reported by industry monitor IIR. Vitol, the refinery's operator, declined to provide a comment.