Low oil prices have become a major challenge for the refinery sector by threatening the profit margin of petroleum products, according to energy sector experts last week.
Apart from the upstream sector, the steeply falling prices impact refineries differently, according to their infrastructure and depending on how the facility is integrated for upstream activities.
According to experts, for the companies which are active both in upstream and downstream activities, low oil prices have double the impact.
'Oil importers and less upstream-integrated companies might be positively affected in the short term because price changes are following crude oil prices in delay,' said Ivan Soucek, an expert from Prague Institute of Chemical Technology, and added that the reverse applies for upstream-integrated refineries.
'Obviously, upstream-integrated refineries will be negatively impacted because of the quick response to crude prices,' Soucek stated referring to the immediate effect of the downward fluctuation in crude oil prices hitting the market.
Major oil companies like Shell and Exxon Mobil are likely to experience more losses due to their integrated activity model in oil processing phases, according to Soucek.
Many U.S. oil giants, like ExxonMobil and ConocoPhillips, announced in the last months that they have lowered their capital expenditures, capex, for 2015 in order to cut spending amid falling oil prices.
The energy giant Royal Dutch Shell also announced on Jan. 14 that it will not proceed with the $6.5 billion Al Karaana petrochemicals project in Qatar due to high capital costs.
'Refinery companies located in oil importing countries have an advantage compared to ones which are active in both the upstream and downstream sectors,' said Ayhan Erdem, an expert from the Caspian Strategy Institute.
Erdem also pointed out that refineries trade with high storage amounts and said that this is a disadvantage for the downstream sectors, such as fuel oil and petrochemicals.
Unstable prices are one of the key determiners on the profit margin of refineries as they are highly sensitive to price changes due to storage volumes.
By Nihan Cabbaroglu and Ugur Serhan Ozcan
Anadolu Agency
nihan.cabbaroglu@aa.com.tr