Vitol, an energy trader, recently demonstrated the heightened competition for dwindling refining capacity in Europe by making a bid to acquire one of the continent’s largest oil refineries.
This move comes in the wake of Russia’s invasion of Ukraine. Vitol secured a controlling stake in Saras, a refinery situated in Sardinia, through an acquisition agreement with the family of Italian billionaire Massimo Moratti. This agreement followed Vitol’s earlier loss to competitor Trafigura in a bid for control over another significant refinery in Sicily.
Europe’s refinery sector has been grappling with a prolonged decline as major oil companies shutter plants to align with net-zero emissions targets and address the mounting challenge posed by electric vehicles.
However, the conflict in Ukraine and tensions in the Red Sea have altered the landscape, leading energy analysts to foresee a potentially profitable future for these refineries. They anticipate elevated margins for refined oil products like diesel and gasoline, particularly amid the possibility of further supply shocks in Europe.
Recent events have underscored the vulnerability of supplies due to sudden geopolitical instability. For instance, drone strikes by Ukraine on refineries within Russia contributed to a notable 2.7% surge in Brent crude prices.
While diesel and gasoline prices presently stand below the peaks witnessed after the full-scale invasion of Ukraine in 2022—$38.82 for diesel and $24.21 for gasoline—they remain significantly higher than long-term averages despite sluggish economic growth in certain advanced economies.
The rise in premiums for refined products has outpaced the movement in benchmark oil prices. Gasoil futures, which monitor distillate trading in Europe, have surged by 13.2% this year, whereas Brent crude futures have seen a more modest increase of 10.7%.
Europe’s increasing reliance on imports of refined products has left it vulnerable to supply disruptions, such as attacks on shipping in the Red Sea. Many suppliers from Asia are opting for longer routes via southern Africa to mitigate risks.
Before the European Union imposed a ban on Russian imports in response to the invasion of Ukraine, Europe relied on Russia for approximately one-third of its refined oil products.
According to energy consultancy Wood Mackenzie, these sanctions are unlikely to be lifted before 2030, and disruptions in the Red Sea are anticipated to persist throughout the year.
Despite these challenges, analysts have noted the surprising resilience of gasoline, which typically experiences an increase in demand during the US summer driving season.
