Rocky Roads Ahead from Refinery Shutdowns to Protests & Sanctions

By Published On: January 28, 2025Categories: Daily Market News & Insights, Refineries

The global energy market is experiencing seismic shifts, with geopolitical tensions, refinery closures, and evolving demand creating a volatile landscape. On Monday, oil prices fell as the U.S. backed away from a potential sanctions threat against Colombia, easing immediate fears of supply disruptions. This decision followed Colombia’s agreement to accept deported migrants from the U.S., a move given the nation sends 41% of its seaborne crude exports to the U.S. Today, oil prices are up over 30c/bbl at $73 from multi-week lows as supply disruptions in Libya offset concerns over weaker demand driven by soft Chinese economic data.

Meanwhile, risks surrounding Russian oil exports add to market uncertainty. Nearly 20% of the global Aframax fleet, critical for transporting crude, faces sanctions. While some believe the impact on Russian production will remain limited due to discounted prices and alternative shipping routes, others warn that sanctions create a justified risk premium. Compounding these issues, weaker-than-expected Chinese manufacturing data has raised concerns about future energy demand, signaling a rocky road ahead for the global oil market.

In the refining sector, major transitions are underway. LyondellBasell’s decision to permanently shut down its Houston refinery by the end of March highlights the mounting pressures on aging U.S. facilities. The Gulf Coast region, historically resistant to refinery closures thanks to its proximity to oil production and export infrastructure, is beginning to feel the strain of declining U.S. fuel demand and rising competition from new refineries in Nigeria and Mexico. Gulf Coast refineries may survive longer than others due to their ability to pivot toward petrochemical production, but the high cost of maintaining decades-old infrastructure remains a looming challenge.

Globally, supply concerns were further aggravated this week as Libya halted crude loadings from two major ports due to protests, impacting about 450,000 bpd or one-third of the country’s crude exports. Analysts warn that broader unrest could threaten Libya’s production of 1.4 million bpd. Additionally, Russia’s Ryazan oil refinery suspended operations after a Ukrainian drone attack, affecting 5% of the nation’s refining capacity. These disruptions show how geopolitical events continue to shape supply dynamics.

 

This article is part of Daily Market News & Insights

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