Portuguese integrated Galp expects its refining margins to improve in the second half of this year as increased demand for marine fuels supports crack spreads for middle distillates.
The company's refining margin has been "clearly recovering" in July, according to chief executive Carlos Gomes da Silva, and should comfortably be above $4/bl for the rest of the year. The firm cut its estimate for average refining margins in 2019 to $4/bl from $5-6/bl previously after a difficult second quarter.
Gomes said increased demand for marine fuels compliant with the International Maritime Organisation (IMO) global cap on sulphur emissions will come largely in October-December, although he said the firm was too hasty in expecting a widening of middle distillate spreads earlier in the year. The IMO cap comes into force on the first day of 2020.
Galp expects opportunities in the Atlantic basin for gasoline exports to improve over the next two quarters. Higher middle distillate demand in the fourth quarter could create opportunities for distillate marine fuels exports, as could increasing spreads for diesel in the Atlantic basin, it said.
The firm expects to begin deliveries of IMO-compliant marine fuels to some of its clients shortly, Gomes said.
Galp cut crude runs at its 330,000 b/d of refining capacity to minimise the impact of historically weak crack spreads for gasoline over the period. It processed 252,000 b/d of crude in the second quarter, down by 13pc year on year, and 34,000 b/d of oil equivalent (boe/d) of feedstock other than crude, up by 55pc on the year — likely vacuum gasoil (VGO) to support yields of middle distillates.
Of Galp's refinery production in the third quarter around 46pc was middle distillates, up from 43pc a year earlier. Output of fuel oil fell to 13pc of total production from 16pc, reflecting the higher use of its cracking units.
Galp's operating profit from its refining and marketing business fell by 19pc to €142mn ($158mn) in the second quarter from a year earlier.
