A wave of strikes and protests swept across Europe this week. Greece faced a general strike and Spanish unions protested against government austerity measures (see page 9). In France, a week-long walkout at French oil giant Total, in response to the group’s planned closure of a refinery at Dunkirk, subsided after Total agreed not to shut any more French plants for five years. It may even keep Dunkirk open. The walkout had led to fuel shortages in France. Supply fears bolstered bullish sentiment in the oil market, where crude this week hit a six-week high of $80.
What the commentators said
The refinery protest was merely “delaying the inevitable”, said Carl Mortishead in The Times. This isn’t just a cyclical downturn for the refining industry. “The stinking fuel factories of Europe and North America are in their death throes.” There are too many inefficient refineries in the developed world, while Asia is building more and more to cater for local demand.
Many refineries are only running at 75% capacity, noted Rowena Mason on Telegraph.co.uk. Meanwhile, demand for oil products has slid amid the recession and is not set to bounce back fully, given the ongoing shift away from petrol towards biofuels and electric cars. The International Energy Agency also notes that in the Western world heating oil is increasingly being replaced by other energy sources, especially gas.
So the oil market has got ahead of itself. As Eugen Weinberg of Commerzbank pointed out, the overall supply of oil and oil products in the US is still significantly above the five-year average. Given the weak fundamentals, the crude price, said Yuichiro Sakaki of Mizuho Securities, “is too high”.