Market Snapshot: Refineries are reducing production due to lower oil demand during the COVID-19 pandemic
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Release date: 2020-05-13
As a result of the COVID-19 pandemic, governments around the world, including Canada, have put restrictions in place so that people remain at home as much as possible. These restrictions have resulted in unprecedented reduction in global demand for refined petroleum products (RPPs), particularly those used in transportation, such as gasoline, diesel, and jet fuel.
In response, refineries around the world, including in Canada and the United States (U.S.), are processing much less crude oil; the feedstock required to produce RPPs such as gasoline, diesel, and jet fuel. The IEA estimates that global oil demand will be reduced by about 29 million barrels per day (MMb/d) in April, or about 30% year-over-year, to a level not seen since 1995. (Figure 1)
Figure 1. Estimated change in monthly oil demand in selected countries, 2020 relative to 2019
Source and Description
Source: IEA, Change in monthly oil demand in selected countries, 2020 relative to 2019
Description: The chart shows the estimated change in global oil demand (in MMb/d) in 2020 relative to the same period in 2019. April is the peak expected decline at 29 MMb/d, with May also showing a large decline. Oil demand is shown to gradually improve over the second half of 2020 to declines of less than 5 MMb/d by August and onward.
Utilization rates of Canadian refineries have dropped by more than 30% since the beginning of March, and by over 35% since the beginning of the year. Some refineries have reduced operations while others have completely shut down operations until demand improves. For example, Newfoundland and Labrador’s Come by Chance Refinery, which normally consumes 130 thousand barrels per day of crude oil, stopped operating in April.
Canadian refineries have capacity to process over 1.9 MMb/d of crude oil. COVID-19 has resulted in refineries processing just below 1.1 MMb/d of crude oil for the week ending 14 April 2020 (Figure 2). Prior to the COVID-19 pandemic, the lowest Canadian weekly crude run volumes over the past five years was 1.14 MMb/d in April 2018.
Figure 2. Weekly Canadian refinery utilization in percent for weeks ending 7 January 2020 through 14 April 2020
Source and Description
Description: The chart shows weekly Canadian refinery utilization in percent for weeks ending 7 January 2020 through 14 April 2020. Refinery utilization has dropped from 91% for the week ending 7 January 2020 to 57% for the week ending 14 April 2020. This is a drop of 37%.
Decreasing refinery utilization in Canada is similar to what is happening globally. Refinery utilization in the U.S. has declined by 22% since 1 March 2020 and by more than 25% since the beginning of the year. IEA forecasts that global refining crude intake will decline by 16 MMb/d in the second quarter of 2020 alone.
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