Refinery Margin Gain on Cold, Run Cuts, May Not Last, OPEC Says

By Nidaa Bakhsh

Jan. 15 (Bloomberg) -- Higher refinery profit margins as a result of cold weather and reduced refinery activity, may prove temporary as a slowing world economy saps demand, the Organization of Petroleum Exporting Countries said.

Higher oil-product prices “may not last long as the recessionary outlook for the world economy may deteriorate product demand,” Vienna-based OPEC said in its Monthly Oil Market Report today. In recent weeks, “a combination of a cold snap across the Western hemisphere with unseasonable cuts by refiners and lower cost of crude provided support for product prices,” it said.

U.S. Gulf Coast refining margins rose to 65 cents a barrel in December, from a negative margin of $1.18 in November, OPEC said. In Rotterdam, the European oil-trading hub, margins fell to $2.79, from $4.35, and in Singapore they rose to $.73 from $2.61.

Cold weather and a natural gas supply disruption caused by a dispute between Russia and Ukraine has temporarily strengthened the “outlook” for fuel oil and middle distillates including diesel and gasoil, the European form of heating oil, as consumers switch from gas to oil-derived heating fuels, OPEC said.

BP Plc’s Global Indicator Margin, a measure of refining profitability using data from third parties, averaged $7.32 a barrel for the first eight days this year, compared with $5.20 last quarter and $4.57 in the first quarter of 2008.

Demand for oil-products will decline following the end of winter in the Northern Hemisphere and as slowing economies force consumers to cut spending on travel and goods. Safar Keramati is OPEC’s refining analyst.

Weak demand may also lead to more reductions in processing, or “refinery runs,” by various oil companies, leaving crude oil inventories high, OPEC said.

To contact the reporter on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net