Changes on the fuel market in 2020

In 2020, Brent crude prices fell 24.4% relative to the end of 2019 (USD 67.8/bbl). At the same time, the average price of Brent in 2020 was USD 42/bbl, down by USD 22.3/bbl (-31%) on the 2019 average, which was mainly attributable to the COVID-19 pandemic, leading to a sharp decline in global demand for crude oil. The price was also affected by the lack of a coordinated policy with respect to crude production among the OPEC+ countries, which caused a considerable slump in the value of crude oil in March and April 2020. However, since mid-2020, thanks to coordinated action by the OPEC+ members, crude prices have increased substantially to reach USD 51.2/bbl at the year’s end, far above the price paid on April 21st 2020 (USD 9.1/bbl – the lowest level recorded in 2020). Other events, such as the Brexit negotiations and instability in the Middle East (Iran) and North Africa (Libya), also had an impact on crude oil prices.

At the same time, the decline in WTI grade prices was slightly lower, of 20.5% in 2020. However, it should be noted that the WTI crude market saw an unprecedented development in 2020 – as the May WTI crude futures fell below zero on NYMEX in April, temporarily plunging to as low as USD -37/bbl, which was caused by high market oversupply due to the COVID-19 pandemic and lack of available storage capacities (since such contracts are settled through physical delivery of crude oil at the Cushing terminal).

Given its inferior quality and other factors, the price of Russian crude (Urals) is generally slightly lower than that of Brent, with the average price differential between the two grades amounting to USD -0.58/bbl in 2020 (compared with USD -0.89/bbl in 2019).

Brent crude prices in 2018–2020 (USD/bbl)

Source: In-house analysis based on Refinitiv data.

Natural gas prices on the National Balancing Point (NBP) (USD/million BTU¹)

¹BTU – British Thermal Unit

Source: In-house analysis based on Refinitiv data.

Global prices of crude oil are usually denominated in US dollars. Therefore, from the perspective of refining companies, crude prices are as important as the exchange rates of their local currencies against USD. In 2020, the Polish currency appreciated slightly vs the US dollar, with the USD/PLN exchange rate falling 1%, from PLN 3.7977 at the end of 2019 to PLN 3.7584 at the end of 2020. However, for some time during the year (from March to May) the USD/PLN exchange rate was considerably higher, ranging between PLN 4 and PLN 4.2.

PLN/USD exchange rates in 2018–2020

Source: In-house analysis based on National Bank of Poland data.

In addition, oil and gas prices may be affected by factors such as a decline in demand (reflecting an economic downturn), geopolitical uncertainties and armed conflicts in oil extraction areas, import and export restrictions, weather conditions and natural disasters.

In 2020, the primary processing capacities of refineries were estimated at 102.6 million b/d globally. The largest refining units were operated in the US and Canada (20.2% in total) and in China (16.6%). In addition, refineries are becoming increasingly complex, with greater secondary processing capacities.

This long-term trend has been caused by the combination of older, simpler refineries being closed down, existing plants being extended through the addition of secondary processing capacities, and building of new, highly complex plants. This is due to growing global demand for light and ‘clean’ products, coupled with a gradual decline in demand for residual fuel oil. Moreover, these changes result from increasingly stricter fuel quality legislation.

Since 2012, many refineries, with a total capacity of 1.7 million b/d, have been closed down across Europe. There are more than 100 refining plants in Europe with different conversion levels, but the profitability of some of them (taking into account the prevailing market conditions) is low. In addition, the COVID-19 pandemic has had a major negative impact on global refining operations, driving down the capacity utilisation rate. In the aftermath of these events, some units have been or are to be closed down, with closures or capacity reductions having already been confirmed in Belgium, Finland, Portugal, and the United Kingdom. Conversion of traditional plants into biorefineries is another noticeable trend in the current market landscape (at least four such plants will soon be established in Finland, France, Sweden and Italy).

Due to the COVID-19 pandemic with the resulting economic slowdown and slump in fuel demand, as well as the ever-growing focus on environmental protection and the use of alternative energy sources, the global refining capacities are likely to decline, leading to the closure of more refineries (OPEC expects to see decommissioning of units with an aggregate capacity of approximately 2.5 million b/d by 2025, mainly in Europe, the US and Canada, and a further 6 million b/d by 2045).

Refinery capacity utilisation rate in 2019 and forecast for 2040 (%)

Source: In-house analysis based on OPEC data.

In the coming years, new refining capacities are expected mainly in Asia (primarily China and India) and in the Middle East, strengthening the position of those regions in the global refining market and creating additional pressures on traditional refineries operating in developed countries. According to IEA data, the regions have accounted for two-thirds of total investments in the refining sector in the last five years, and more than 80% of the refining capacities under construction.

In 2020, the volume of oil processed in Poland was 25.8 million tonnes, down 5.2% year on year.

Crude oil throughput in Poland (million tonnes)

In-house analysis based on Polish Organisation of Oil Industry and Trade (POPiHN) data.

Crack spreads in 2018–2020 (USD/t)

Source: In-house analysis based on Refinitiv data.